Circular No. 27/TC-TNVT on profit distribution regulations for material supply, trade, and service enterprises

CIRCULAR

OF THE MINISTER OF FINANCE NO. 27/TC-TNVT
OCTOBER 20, 1982 REGULATING THE DISTRIBUTION SYSTEM
OF PROFITS FOR ENTERPRISES SUPPLYING MATERIALS,
COMMERCE, AND SERVICES

The Council of Ministers issued Decision No. 146-HĐBT dated August 25, 1982 on amending and supplementing Decision No. 25-CP dated January 21, 1981. Based on the amendments and supplements in the aforementioned decision and to ensure a reasonable correlation between production enterprises and enterprises in the distribution sector, the Ministry of Finance regulates and guides the profit distribution system for material supply enterprises, commerce enterprises, and service enterprises (hotels, catering, laundry, haircuts, bicycle repair, motorcycle repair, radio and television repair, watch repair...) operating independently, hereinafter referred to as enterprises in the distribution sector as follows.

A. ECONOMIC AND FINANCIAL PLAN AS THE BASIS
FOR PROFIT DISTRIBUTION

The business plan of enterprises in the distribution sector includes the main business plan and the auxiliary production plan (if applicable).

I. MAIN BUSINESS PLAN

The main business plan of an enterprise includes the basic business plan and the non-basic business plan (dependent accounting).

1. Basic Business Plan is the entire plan for goods circulation and profit belonging to the basic business according to three types of prices: supply price, state-guided price, and agreed price. All business activities and goods circulation under the new three types of prices must be planned. When reviewing the plan, the review should cover the circulation plan and the accumulation plan of the basic business including all three types of prices.

In the accumulation plan, it is necessary to clearly distinguish between price difference and profit.

a). For goods sold and inventory accounted for at the state-guided price, profit is the difference between the approved commercial discount or material discount rate and the cost of circulation. Any excess over the approved discount rate is considered a price difference, which must be paid into the state budget. Enterprises can only distribute profits within the approved discount rate (in other words, they can only distribute profits from the profit quota established from the discount group or item).

The above price differences arise in two stages:

- Price Difference I occurs at the first-level enterprise and may occur upon receipt or sale. A price difference occurring upon receipt happens when the actual purchase price is lower than the state-guided warehouse price (the warehouse price is the state-guided retail price or the wholesale material price minus (-) the discount); a price difference occurring upon sale happens when the state-guided selling price is higher than the inventory price. The entire Price Difference I must be paid into the central government budget.

- Price Difference II occurring at the second-level enterprise (including catering companies) is the difference between the actual state-guided selling price and the inventory price. This type of difference usually arises from local authorities setting higher selling prices than those set by the central government (for items and groups where local authorities are permitted to set higher prices). Generally, the entire Price Difference II must be paid into the local budget. If Price Difference II arises due to industrial goods sold in the procurement fund being higher than the state-guided price, this difference must be used to offset the procurement price difference of agricultural products that exceeds the state-guided price, with any surplus to be paid into the budget. When localities deliver agricultural products to the central government, payment can only be made based on the state-guided price.

The Standing Office of the Council for International Cooperation on Non-Governmental Organizations (Vietnam Friendship Association) is the agency responsible for receiving registration dossiers, leading, and coordinating with member agencies of the Council to examine dossiers and return results of reviews of registration dossiers of foreign non-governmental organizations in Vietnam.)For goods sold at the agreed price,enterprises account for inventory at the actual purchase price (or average price). In principle, trading in such goods must cover costs and generate profit to establish funds and pay taxes.

The profit quota for goods sold at the agreed price is determined according to the profit quota ratio in the discount or the surplus of each group or item. Enterprises can distribute profits based on this quota. Due to operating under the agreed price method, the accumulated income obtained may exceed the profit quota, and the entire excess must be paid into the state budget as a price difference.

In cases where enterprises trade in multiple items or groups at the agreed price, each group having different profit quotas, enterprises can calculate based on the weighted average profit rate of the groups or items. Alternatively, they can base calculations on the profit rate of the group or item with the largest sales volume to cover the total sales volume.

2. Non-Basic Business Plan is the entire plan for production, processing, agency... dependent on the basic business, all of which must be planned and reviewed together in the main business plan of the distribution enterprise. The accumulation from non-basic business activities must be clearly distinguished between price difference and profit as follows:

Profit is the difference between the planned cost (or standard cost) and the actual cost. This profit is added to the profit of the basic business mentioned above for distribution.

Price difference is the difference between the state-guided warehouse price and the planned cost (or standard cost). The entire price difference must be paid into the state budget.

II. AUXILIARY PRODUCTION OF DISTRIBUTION ENTERPRISES

For circulation enterprises without ancillary circulation operations, all such circulation-related operations must be recorded in the main business plan under Section I above (basic and non-basic business operations). In cases where circulation enterprises utilize surplus labor or waste materials collected during their business activities to produce goods for consumption, these production operations are referred to as ancillary production of circulation enterprises. For example, catering shops may utilize wastewater and leftover food to organize livestock farming, tailor shops may use scrap fabric to make pillowcases and economical quilts, and chemical product shops may use discarded packaging to produce children's toys. Prior to incorporating collected waste materials into ancillary production, circulation enterprises must manage and value recover them to reduce the circulation costs of main operations. Waste materials specified in the raw material distribution plan for other units by the state shall not be retained by circulation enterprises for ancillary production. The management and distribution of ancillary production profits of circulation enterprises shall be applied as stipulated for ancillary production in industrial enterprises under Decision No. 146-HĐBT dated August 25, 1992, of the Council of Ministers and Circular No. 21-TC/CNA dated September 1, 1982, of the Ministry of Finance. Relevant ministries need to provide specific guidance on which operations constitute ancillary production for each type of business. This requires consensus from the State Planning Commission and the Ministry of Finance. Annually and quarterly, enterprises must register their ancillary production plans, cost prices, and selling prices with their direct supervisory authorities.

B. DISTRIBUTION OF PROFITS

I. If the enterprise completes the main business plan targets according to the state plan indicators, the enterprise can allocate from its realized profit at the prescribed rate to establish the following enterprise funds:

1. Business Development Incentive Fund which is allocated from 1% to 2% of the original value of fixed assets, with the specific amount for each type of enterprise determined by the competent authority after consultation with the financial authority at the same level, based on maximizing the effectiveness of the fund. If the enterprise fails to meet the profit plan, the business development incentive will only be allocated according to the degree of completion of the profit plan.

2. Welfare and Reward Funds.

Enterprises dealing in agricultural products, foodstuffs, forest products, construction materials, salt, and service enterprises can allocate 20% of the annual wage fund from the main business plan.

Industrial product trading enterprises can allocate 18% of the annual wage fund from the main business plan. The total allocation is divided as follows:

Reward Fund 70%,

Welfare Fund 30%.

3. The remaining profit must be paid into the state budget according to the period specified by the state revenue collection authority.

II. If there is excess profit due to subjective efforts to exceed two targets: sales volume and reduction in circulation costs (after excluding price factors), the excess profit must be paid into the state budget 60%, and the remaining 40% will be added to the funds in the following proportions:

60% to the award fund,

20% for the business development incentive fund,

20% to the welfare fund.

When determining whether an enterprise has completed the profit plan, it cannot solely rely on the final report showing the completion of profit targets, as this indicator often does not fully separate price differences during accounting. Therefore, strict examination of the factors determining the completion of the profit plan is necessary.

- Sales volume both purchased and sold, both in value and quantity, regarding value, the increase in price must be excluded, and actual purchase price must be compared with the recorded purchase price.

- Circulation costs must consider the actual expenses incurred during the period, the amount set aside, and the allocation to inventory. Reduced costs used for rewarding thrift should be noted. Costs not accounted for as circulation expenses but included in the purchase price.

- Losses of assets, overdue debts, receivables that have not been collected, these items need to be considered and handled in relation to profit targets and circulation costs. According to current regulations, when losses are caused by the unit, apart from compensation according to the material responsibility system, some amounts are counted as circulation costs, while others are counted as interest within the period.

III. In case the enterprise fails to complete the main legislative plan targets and violates state economic and financial management policies, the reward and welfare funds will be reduced as follows:

1. If three major targets are not met as follows, for every percentage point (%) not achieved of a target, 2% of the basic quarterly allocation amount must be deducted.

- Total sales volume purchased and sold,

- Quantity purchased and sold of key products,

- Profit and amounts payable to the state budget (actual payment versus required payment).

Specifically, for the quantity purchased target, if it is found that purchasing certain products according to the plan would lead to accumulation, the enterprise must report to higher authorities, and when allocating funds, this will be exempted.

2. If the enterprise violates economic and financial management systems and policies of the state listed below, for each violation, depending on the severity, deductions ranging from 2 to 5% of the basic quarterly allocation amount for the business operation fund (including the part of the fund allocated from excess profit if any) will be made.

- Causing damage to property, materials, and capital.

- Violating economic contracts, violating state procurement and pricing systems.

- Violating reporting, accounting, statistical, and disciplinary rules for state revenue payments.

- Causing fatal accidents due to management deficiencies or lack of responsibility.

IV. If there is profit from ancillary productionafter paying taxes or state revenue, this profit will be distributed as follows: 30% to the state budget, and the remaining 70% to supplement the funds in the following proportions:

60% to the award fund,

20% to the welfare fund,

20% for the business development incentive fund.

V. Maximum limit for the reward fund. The total annual reward fund allocated under Sections I, II, and IV above shall not exceed six months' average wage of production and business workers in the enterprise.

The amount exceeding six months' salary of the enterprise shall be retained at 30%, with 20% submitted to higher authorities (the Ministry in charge for central enterprises, and the Department or Bureau in charge for local enterprises) to establish a centralized financial reserve fund. The remaining 50% shall be submitted to the State budget (the Ministry of Finance will issue specific regulations on the financial reserve fund). The 30% retained by the enterprise shall be distributed as follows:

60% for the bonus fund, 20% for the welfare fund.

20% for the business development incentive fund.

VI. In cases where the enterprise has a need to increase working capital or to construct basic facilities according to the plan, the enterprise may allocate part of the profit submitted to the State budget to supplement working capital and construction funds. The allocation rate shall be determined simultaneously by the management authority above the enterprise and the financial authority at the same level when reviewing the enterprise's financial plan.

VII. If the planned profit is insufficient to establish the funds, the budget shall provide additional funding to make up the difference. If the enterprise fails to meet its plan or has its welfare and bonus funds reduced, and the combined total of both funds does not reach 60 dong per capita, then the budget shall provide assistance to ensure that the combined total reaches 60 dong per capita. For enterprises or industries without a planned profit, the enterprise management authority and the financial authority at the same level shall refer to similar industries and establish a profit standard for the enterprise. This profit standard shall be reviewed by the Ministry of Finance (for central enterprises) and the People's Committee of the province or city (for local enterprises).

Points not amended or supplemented in this Circular shall continue to be applied according to the conditions stipulated in Circular No. 3-TC/CNXD dated March 28, 1978, and Circular No. 4-TC/VP dated March 18, 1981, issued by the Ministry of Finance. Before the management authority reviews the allocation rate for the enterprise's funds, it must obtain the agreement of the financial authority at the same level. Management authorities, banking authorities, and financial authorities need to strengthen financial oversight of enterprises to ensure compliance with the rules for establishing enterprise funds. If an enterprise allocates more than the allowed amount, the enterprise must return the excess; if there is no money in the fund, it shall be deducted from the next period's plan. Anyone who violates the regulations shall have their bonus standards revoked.

This Circular shall be uniformly applied to all circulation enterprises, material supply enterprises, trading enterprises, and independent accounting service enterprises. This Circular shall apply to profit distribution starting from 1982 onwards. All provisions related to profit distribution in circulation enterprises that conflict with this Circular shall be abolished. For independently accounting industrial, agricultural, and transportation enterprises within the circulation sector, the profit distribution system applicable to each type of enterprise shall be implemented.

During implementation, any issues encountered by sectors, levels, and enterprises should be reported promptly to the Ministry of Finance.