JOINT CIRCULAR No. 26/LB/TC/CN guiding the financial management regime for units implementing light industrial goods processing contracts with the Soviet Union pursuant to Decision No. 220-CT dated July 6, 1987 of the Chairman of the Council of Ministers.

JOINT CIRCULAR

Guidelines on financial management for units implementing light industrial processing contracts with the Soviet Union pursuant to Decision No. 220-CT dated July 6, 1987 of the Chairman of the Council of Ministers.

Implementing Decision No. 220-CT dated July 6, 1987 of the Chairman of the Council of Ministers regarding the assignment to some state-owned enterprises to sign contracts with the Soviet side according to the Vietnam-Soviet Economic Cooperation Agreement signed on May 19, 1987.

After reviewing the conditions for implementing economic contracts agreed between the State-Owned Enterprises of Textile, Leather Shoes, and Light Industry and central and local enterprises participating in signing processing contracts with the Soviet Union to implement the Vietnam-Soviet Economic Cooperation Agreement signed on May 19, 1987 (hereinafter referred to as enterprises implementing the May 19 agreement).

2. The financial management of enterprises implementing the May 19 Agreement shall in principle still comply with the provisions of Decision No. 217-HĐBT dated November 14, 1987 of the Council of Ministers and Circular No. 78-TC/CN dated December 31, 1987 of the Ministry of Finance guiding the implementation of Decision No. 217-HĐBT. Below only additional issues will be specified to suit the form of production cooperation under the May 19 Agreement.

II. Sources of capital and centralized funds serving the implementation of processing contracts under the May 19 Agreement.

1. Investment Capital for Construction and Development.

Central and local enterprises participating in signing contracts to implement the May 19 Agreement are allowed to allocate part of their existing machinery and equipment capacity to produce semi-finished and finished products for export to the Soviet Union according to economic contracts and annual plans.

When there is a need to expand investment or deepen investment to have sufficient production capacity to fulfill the signed contracts, central and local enterprises first must mobilize their own capital resources (investment capital for construction and development, development fund, including investment capital for construction and development transferred from other enterprises within the industry). If there is still a shortage or newly established enterprises without their own capital can borrow credit funds from banks (including foreign currency funds) according to current regulations.

All expansion and deepening investment projects using self-raised capital and borrowed funds to serve the implementation of the May 19 Agreement must complete all construction and development procedures subject to supervision by higher authorities and financial institutions and banks.

Fixed assets available and newly invested to serve the implementation of the May 19 Agreement must be depreciated according to the general regime. The amount of basic depreciation is retained by the enterprise at 100% to repay investment construction and development loans according to loan agreements and to establish the enterprise's own investment construction and development capital.

2. Working Capital.

Central and local enterprises participating in implementing the May 19 Agreement shall re-determine working capital quotas appropriate to their business tasks, including working capital needed to implement the May 19 Agreement.

The working capital serving the implementation of the May 19 Agreement is determined based on domestic costs for processing, manufacturing, and transportation, excluding raw materials, packaging, and auxiliary materials provided by the Soviet side according to processing quotas. The guarantee of working capital quotas for enterprises implementing the agreement follows the current system.

Part on working capital for the value of raw materials and packaging from the Soviet Union provided for processing according to quotas shall not be included in the enterprise's quota working capital. Enterprises may borrow foreign currency from banks to settle payments as prescribed by the foreign trade bank.

3. Foreign Exchange Reserve Fund. Joint Stock Companies signing contracts with the Soviet Union under Agreement 19.5 shall establish a reserve fund in foreign currency managed by the Joint Stock Company or authorized by the Joint Stock Company to be managed by its own specialized import-export company.

- The foreign exchange reserve fund shall be used to prepay compensation for losses on exported goods and to settle shortages in imported goods when the responsible production unit causing the loss has not been identified and when compensation from the Soviet side due to insufficient or poor quality delivery has not been recovered.

- When the responsible unit causing the loss is identified, that unit must withdraw from the foreign exchange reserve fund or borrow from the bank to repay the reserve fund the amount of compensation owed. Compensation for imported goods due to defects on the Soviet side will also be repaid to the reserve fund.

- The source for establishing the reserve fund shall be drawn from the actual foreign currency revenue from implementing Agreement 19.5 at a rate of 0.5% of the total CIF value of imported goods and 0.5% of the total POB value of exported goods.

At the end of the accounting period, the Joint Stock Company must settle the foreign exchange reserve fund and submit to the board of directors for a decision to allocate a portion of the reserve fund to the next year, while the remaining amount is distributed among participating enterprises according to a ratio uniformly determined by the board of directors based on the POB value of exported goods and the CIF value of imported goods of each enterprise during the accounting period.

III. Implementation of turnover tax system and distribution of actual revenue:

1. Export Tax.

Finished and semi-finished products produced by central and local enterprises using raw materials provided by the Soviet Union according to quotas for export to the Soviet Union under Agreement 19.5 shall be implemented in accordance with the Law on Export and Import Duties.

2. Import Duties.

- Machinery, equipment, and transportation vehicles imported for investment expansion, renovation, and modernization of enterprises in Vietnam to produce finished and semi-finished products supplied to the Soviet Union under Agreement 19.5 shall be subject to import duties according to Chapter I of the Tariff accompanying the Law on Export and Import Duties.

Raw materials imported for producing finished and semi-finished products for export shall be exempted from taxes as stipulated in Point d, Article 8, Chapter IV of the Law on Export and Import Duties.

- Raw materials and goods imported for domestic use which are subject to import duties under current laws shall be subject to import duties as prescribed by the current Law on Taxes.

3. Import Duties on Trade Goods.

In principle, finished and semi-finished products proposed for the Soviet Union and paid for partially in goods by the Soviet Union shall be subject to import duties on trade goods if they fall within the taxable category.

Under the new conditions of cooperation through processing and payment of part of the processing fee in goods with the Soviet Union, where labor productivity remains low and the processing fee for one exported product is too low, the income of enterprises is barely sufficient to cover the costs of processing. Therefore, for goods imported by the Soviet Union to pay processing fees to units participating in Agreement 19.5, the Ministry of Finance will consider exemptions or reductions in import duties on trade goods on a case-by-case basis upon request from the units.

4. State Revenue: Enterprises participating in Agreement 19.5 must pay state revenue to the budget when delivering finished and semi-finished products to specialized export companies for export to the Soviet Union.

The rate of state revenue is determined as a percentage set by the Ministry of Finance based on the processing fee for production and processing paid by the Soviet Union for the quantity of exported products (in actual foreign currency received) multiplied by the official exchange rate.

- Finished and semi-finished products produced by central and local enterprises using additional raw materials and auxiliary materials provided by the Soviet Union outside the quota (additional raw materials and auxiliary materials provided by the Soviet Union outside the quota to pay for processing fees), or products and semi-finished products produced for export but not exported, if sold domestically, must be subject to state revenue according to the current regulations.

3. Distribution of Actual Foreign Currency Revenue and Vietnamese Bank Money.

a. The actual foreign currency revenue of enterprises implementing Agreement 19.5 is the processing fee calculated in foreign currency, which is the total export revenue (-) the total value of raw materials provided by the Soviet Union according to quotas in foreign currency.

- Enterprises participating in Agreement 19.5 have the obligation to sell back to the state 10% of their actual foreign currency revenue and will be reimbursed by the state in Vietnamese bank money according to the official settlement exchange rate.

- After deducting the value of equipment, machinery (Appendix 2 of Agreement 19.5), goods (Appendix 5 of Agreement 19.5), raw materials provided outside the quota, foreign currency loan interest, foreign currency sold to the state according to obligations, foreign exchange reserve fund contributions, and agency fees for export and import, if there is any surplus, the enterprise may transfer it to the next year for continued settlement. If the enterprise agrees to sell, the state will purchase it to balance the annual trade deficit and reimburse the enterprise in Vietnamese bank money according to the average actual export exchange rate of that year.

If the total revenue from exports to the Soviet Union is less than the total value of raw materials, machinery, equipment, and goods provided by the Soviet Union in foreign currency, the enterprise shall be responsible for recording a debt in the following year's plan to continue settling with the Soviet side.

b. The actual revenue collected in Vietnamese bank funds from enterprises implementing Agreement 19.5 is the amount of money received from additional goods, machinery, equipment, raw materials, and auxiliary materials handed over to offset labor costs corresponding to finished and semi-finished products exported to the Soviet Union according to the price specified in Circular No. 14-VGNN-PPCĐ dated October 20, 1987 of the State Price Commission guiding the implementation of Directive 220-CT, and the amount of money paid by the State for repurchasing foreign currency according to obligations and surplus foreign currency voluntarily sold by the enterprise.

The actual revenue collected in Vietnamese bank funds, after deducting export and import taxes (if applicable), import trade goods taxes (if applicable), state-owned enterprise revenues, production processing costs, import and export costs..., if there is any surplus, the enterprise may use it to supplement its own capital, working capital to expand production, and establish three enterprise funds according to the current regulations.

In cases where the actual revenue collected in Vietnamese bank funds is insufficient to cover the taxes payable and the aforementioned costs, the enterprise must find legitimate sources to cover them. The State will not provide loss compensation.

III. Organization of accounting work.

Based on the national accounting and statistical system and based on the actual situation of production and business division, the Ministry of Light Industry guides enterprises participating in the implementation of Agreement 19.5 to organize accounting and statistical work well from the initial recording stage to the comprehensive accounting stage.

Enterprises participating in the implementation of Agreement 19.5 have the responsibility to record fully, promptly, and truthfully, and separately account for economic activities arising related to the implementation of Agreement 19.5 and report periodically the results of their production and business operations to the lead LHXN and relevant agencies as prescribed by the State. Lead LHXN and relevant agencies as prescribed by the State. Lead LHXN have the responsibility to compile reports of enterprises within the group participating in the implementation of Agreement 19.5.

IV. Implementation Provisions.

This Circular takes effect from the date of signature. Lead LHXN under the Ministry of Light Industry, central and local enterprises participating in the processing and export of light industrial goods to the Soviet Union under Agreement 19.5, and relevant agencies are responsible for implementing this Circular.

During the implementation process, if there are any difficulties, units and enterprises should promptly reflect them to the Joint Ministry of Finance - Light Industry for research and resolution.

During the implementation process, if any difficulties arise, units and enterprises shall promptly reflect them to the Ministry of Finance - Light Industry for study and resolution.