Circular No. 4-TC/TT guiding the implementation of profit distribution regulations for enterprises according to Decision No. 25-CP dated January 21, 1981 of the Council of Ministers

CIRCULAR

GUIDELINES FOR IMPLEMENTING THE DISTRIBUTION OF PROFITS REGIME FOR STATE ENTERPRISES ACCORDING TO DECREE NO. 25-CP OF JANUARY 21, 1981 ISSUED BY THE COUNCIL OF MINISTERS

Pursuant to Decision No. 25-CP dated January 21, 1981 of the Council of Ministers, to promote the initiative in production and business operations and financial autonomy of state-owned enterprises under the centralized and unified leadership of the State, from now on, in addition to the national plan tasks assigned, the State encourages enterprises to actively produce additional main products, by-products, engage in industrial activities, or expand their business scope if the enterprise has remaining production capacity and can self-provide material conditions.

Thus, the enterprise's plan consists of three parts: The part assigned by the State plan, the part undertaken independently by the enterprise, and the part for by-product production. Enterprises must clearly distinguish and balance all three parts of the plan and consolidate them into the enterprise's financial income and expenditure plan. From now on, there will be no product considered outside the enterprise's plan, and the delivery of products by state-owned enterprises must comply with the State's distribution and circulation systems and policies.

1. Profit standards and guaranteed pricing.

Products included in the State plan or produced independently by the enterprise and sold according to which price must be accounted for at that price. Enterprises must separately account for products sold at negotiated prices to avoid confusion with products sold at directed prices.

a) For products produced according to the State plan, the selling price of the enterprise is determined based on the planned cost price and the current profit standard. The difference between the industrial wholesale price and the enterprise's wholesale price constitutes the state revenue.

Example: Enterprise X produces sugar with a reasonable cost price of 1 ton according to the State plan at 1,161 dong. The profit standard is 4%, which is 46 dong. The enterprise's wholesale price: 1,161 dong + 46 dong = 1,207 dong. The industrial wholesale price is set at 2,065 dong. The state revenue to be paid: 2,065 dong - 1,207 dong = 858 dong.

b) For products produced according to the independent plan, the cost price is calculated based on the actual purchase price of raw materials, including full depreciation of basic assets, major repairs, and other costs as uniformly prescribed by the State. The profit standard and state revenue are calculated according to Decision No. 25-CP as follows:

- "The absolute profit standard for independently produced products is calculated at two to four times the profit standard for products produced according to the State plan." According to the above example, the minimum profit standard for 1 ton of sugar produced independently would be 46 dong x 2 = 92 dong, and the maximum would be 46 dong x 4 = 184 dong.

- The industrial wholesale price and the price of independently produced products should ensure the state revenue submitted according to the directed price, specifically, the state revenue submitted according to the directed price for 1 ton of independently produced sugar is 858 dong.

- Subtracting this amount from the industrial wholesale price and then subtracting the cost price of the independently produced product will yield the actual profit. If the actual profit equals the encouraged profit within the specified range (from 92 dong to 184 dong per ton of sugar as calculated above), the enterprise retains that profit as the encouraged profit.

- In cases where the actual profit of independently produced products exceeds the maximum limit (exceeding 184 dong per ton of sugar), the entire excess must be paid into the State budget and considered additional state revenue.

- In cases where the actual profit of independently produced products does not meet the minimum requirement (below 92 dong per ton of sugar), the enterprise may increase the actual profit to the minimum level and reduce the corresponding state revenue submitted to the State budget.

In such cases, the enterprise is only permitted to reduce the state revenue to be paid and increase the actual profit after inspection and approval by local Finance Departments.

In cases where the independently produced product does not match the main product assigned by the State plan, i.e., there is no existing profit standard for a similar product sold at a directed price to multiply by two or four times for independently produced products. In such cases, the encouraged profit standard for independently produced products (calculated absolutely) still bases on the profit standard of the main product but excludes the raw material factor.

Example: Enterprise X has the main product in the State plan as fish sauce, but it also produces vinegar. We have the following data:

Cost price of 1 liter of fish sauce excluding raw material cost: 1.30 dong - 0.85 dong = 0.45 dong.

Cost price of 1 liter of vinegar excluding raw material cost: 1.14 dong - 0.97 dong = 0.17 dong.

After excluding the raw material factor, if the profit margin is equal, the profit standard for 1 liter of vinegar sold at a directed price (X) will be:

0.036 dong x 0.17 dong

X = 0.014 dong.

0.45 dong

The profit standard for 1 liter of vinegar sold at a negotiated price will be set at two to four times the profit standard for the directed price, i.e.,

From 0.014 dong x 2 = 0.028 dong.

To 0.014 dong x 4 = 0.056 dong.

After deducting state revenue according to the main product, if the independently produced product still ensures the actual profit within the specified range (from 0.028 dong to 0.056 dong per liter of vinegar), it retains that profit as the encouraged profit. If the actual profit of the independently produced product exceeds the maximum limit (0.028 dong), the enterprise pays the excess. If the actual profit of the independently produced product is below the minimum (0.028 dong), the encouraged profit is increased to the minimum level and the corresponding state revenue is reduced after inspection and approval by local Finance Departments.

For enterprises producing goods within the state plan that have planned losses approved, they are exempted from state revenue collection, but the profit standard stipulated currently for this enterprise will still be used as the basis to calculate the level of encouraged profit for self-made products. If self-made products sold at agreed prices achieve actual profits exceeding four times the current prescribed profit standard (calculated absolutely), then the excess amount will still be subject to state revenue collection.

Based on the guaranteed business price and the above regulations for self-made products produced according to the plan, each enterprise calculates the level of encouraged profit and the level of state revenue collection for each product and sends them to local Finance Departments and Bureaus for review and comments before submitting to higher-level management authorities (along with the same-level finance authority) for approval. After approval, the enterprise must submit the formal plan to local Finance Departments and Bureaus for monitoring and supervision of revenue payment.

When prices fluctuate significantly, causing changes in production costs and selling prices of products, it is necessary to re-establish profit standards and levels of state revenue collection; the enterprise must prepare a plan to request re-examination according to the aforementioned procedures.

c) For secondary products, the method of calculating the level of encouraged profit is similar to that for self-made products, while state revenue is calculated uniformly at 10% of turnover. However, if secondary products sold at agreed prices achieve actual profits exceeding four times the current prescribed profit standard (calculated absolutely), they will not need to pay additional state revenue like self-made products for two or three years as decided by the higher-level managing authority. If secondary products achieve actual profits less than four times the current prescribed profit standard, the level of encouraged profit will be increased to four times and the corresponding state revenue will be reduced after verification and approval by local Finance Departments and Bureaus.

If self-made products and secondary products sold at agreed prices to state trading enterprises only cover production costs without profit or with very little profit close to the current prescribed profit standard (calculated absolutely), the state will encourage enterprises by exempting them from state revenue payment, reducing or exempting profit contribution rates. In this case, the enterprise must ensure payment of depreciation, repayment of bank loans and interest, and avoid operating losses.

2. Distribution of enterprise profits:

Enterprise profits continue to be distributed according to the current provisions in Circular No. 165-TTg dated March 21, 1978, issued by the Prime Minister, and Circular No. 3-TC/CNXD dated March 28, 1978, issued by the Ministry of Finance, amended and supplemented by Decision No. 25-CP dated January 21, 1981, and according to the provisions of this Circular.

The criteria for award consideration still depend on the degree of completion of the state plan; if the state plan is fully completed, the entire set of indicators stipulated by the ordinance will be considered, and a higher reward level will be enjoyed. If the state plan is not fully completed, the main criteria will be the primary products consumed and delivered according to the state plan, profit, and budget contributions, and a lower reward level will be enjoyed. For self-made plans and secondary production plans, enterprises must ensure the delivery of completed products, profit targets, and revenue payments according to Decision No. 25-CP dated January 21, 1981, to enjoy benefits.

a) For the part of the state plan assigned:

- When the enterprise completes the state plan, it can extract bonuses and welfare funds based on the annual salary grade (6% and 8% of the annual salary grade for each fund for enterprises in production, construction, and transportation sectors; 4% and 6% of the annual salary grade for each fund for enterprises in distribution, circulation, and service sectors). If the state plan is not completed, the extraction rate of these funds will be reduced according to the ratios stipulated in Circular No. 165-TTg of the Prime Minister and Circular No. 3-TC/VP of the Ministry of Finance.

The portion of the incentive fund is 70% of the total amount allocated to the two funds, while the portion of the welfare fund is 30%.

The production development encouragement fund shall be allocated at a percentage rate based on the original value of fixed assets according to the agreed level with each industry. In cases where profit plans are not met, the allocation level for the fund must be reduced accordingly.

Apart from the aforementioned three funds, if the enterprise has a need and a reviewed plan, it may retain a portion of the profits to supplement the required additional working capital or participate in investment plans for projects funded by the state budget.

If there is no need and a reviewed plan, after allocating sufficient amounts to the three funds, the remaining profits shall be submitted to the state budget.

- In cases where the enterprise registers higher than the assigned state plan, the realized excess profit shall be distributed as follows: 20% to the state budget, and 80% to the three enterprise funds.

- In cases where the enterprise does not register higher but exceeds the assigned state plan, the excess profit shall be distributed as follows: 40% to the state budget, and 60% to the three enterprise funds.

The portion of profits allocated to the three funds shall be distributed as follows: 20% to the production development fund, 60% to the incentive fund, and 20% to the welfare fund. Thus, within the total amount allocated to the incentive and welfare funds, approximately 70% is allocated to the incentive fund. According to the previous control limit, the incentive fund did not exceed one and a half months' worth of salary grade, now raised to three months' worth of salary grade (as per Decision No. 25-CP). Any amount exceeding three months' worth of salary grade will be transferred to the welfare fund.

b) For the part of the self-made plan of the enterprise.

The criteria for awarding bonuses are based primarily on two indicators: the products sold and delivered, and profits and payments to the state budget as stipulated in Decision No. 25-CP dated January 21, 1981, and the provisions in this Circular.

The enterprise may retain a portion of its products to exchange for materials (including imported materials) for continued production, at a ratio permitted by the minister of the main supervising department (for central enterprises) or the chairman of the People's Committee of the province or city (for local enterprises). The portion of products retained for exchange must be fully accounted for at the wholesale industrial price, i.e., the product cost, the standard profit margin, and the state revenue level as prescribed. In cases of barter transactions, accounting and settlement shall be based on the physical exchange ratio along with the corresponding purchase and sale prices. If the settlement price includes state revenue, the enterprise must pay the full state revenue for the exchanged goods.

If the enterprise violates policies and regulations concerning material management, financial management, currency, and pricing, depending on the severity of the violation, for each case, the enterprise must reduce the allocation to each incentive and welfare fund by 2% to 5% for the self-made plan portion.

Profits from the self-made plan portion shall be distributed as follows: 20% to the state budget, and the remainder shall be used for the three enterprise funds at the following rates: 20% to the production development fund, 60% to the incentive fund, and 20% to the welfare fund.

c) For the by-product production portion. The criteria for awarding bonuses are based primarily on two indicators: the products sold and delivered, and profits and payments to the state budget as stipulated in Decision No. 25-CP dated January 21, 1981, and the provisions in this Circular.

The enterprise may retain no more than 10% of by-products to serve as tangible rewards for workers and staff within the enterprise. The portion of products used as tangible rewards must be accounted for at the enterprise's wholesale price, i.e., the product cost and the standard profit margin as prescribed, and exempted from state revenue.

If the enterprise violates policies and regulations concerning material management, financial management, currency, and pricing, depending on the severity of the violation, for each case, the enterprise must reduce the allocation to each incentive and welfare fund by 2% to 5% for the by-product production portion.

Profits from the by-product production portion shall be distributed as follows: 15% to the state budget, and the remainder shall be used for the three enterprise funds at a ratio determined through negotiation between the enterprise director and the trade union.

3. Quarterly Plan Registration and Advance Profit Allocation for Enterprises

. The enterprise must have an approved annual or quarterly plan (including both the state-assigned plan and the self-made plan portion), which includes the by-product production plan that has been consolidated into the enterprise's financial income and expenditure plan. Based on the approved annual or quarterly plan and Circular No. 20-TC/VP dated December 17, 1979, issued by the Ministry of Finance, guiding the preparation and consolidation of financial plans starting from 1980, the enterprise selects appropriate indicators to register quarterly plans. The quarterly plan registration form (divided by month) must be submitted to the local finance departments within the first ten days of the quarter.

After the quarterly settlement, if the local finance departments confirm that the registered level has been achieved without violating policies and regulations concerning material management, financial management, currency, and pricing, the enterprise may temporarily allocate 75% of the retained profits for the three enterprise funds according to the registered plan level. If violations occur, the local finance departments shall decide to reduce the advance allocation to 50%. In cases where a decision cannot be made, the enterprise and the local finance departments shall report to the higher-level management authority for resolution. By the end of the year, the enterprise must settle all quarterly advance allocations based on the officially reviewed annual settlement by the higher-level supervisory authority after consulting the comments and recommendations of the state financial authority regarding the enterprise.

4. Utilization of the Incentive Fund.

The enterprise must concentrate the incentive fund allocated from the three parts of the plan (a + b + c) to distribute according to common standards for all workers and staff of the enterprise, ensuring the principle of distribution based on individual contributions and actual performance.

The Director of the enterprise, in addition to using the reward fund to reward collectives and individuals for their achievements in completing the enterprise's plan and for special rewards during the year, may also use this fund to reward economic contract units that have contributed specifically to the completion of the enterprise's plan.

5. Reserve Fund of State Enterprise Associations.

For enterprises that establish positive plans regarding the state-assigned portion (excluding objective factors such as additional basic construction investment, price changes, etc.), if the profit paid to the state budget exceeds the previous year, after the annual settlement has been officially reviewed, they may allocate 5% of the excess profit to establish a reserve fund for state enterprise associations to provide financial support to affiliated enterprises according to Circular No. 2-TC/VP dated January 18, 1980, issued by the Ministry of Finance on the financial system of state enterprise associations.

6. Implementation Clause. This Circular takes effect immediately in the assessment of rewards for the completion of the enterprise's 1980 plan.

When reviewing the 1980 settlement, the accumulated revenue payments to the budget and retained profits allocated to the enterprise fund must be recalculated according to new regulations to settle definitively the revenue payment relationship between the budget and the enterprise. Due to the newly established system, for the year 1980, there will be no issue of penalties for violating policies, nor reductions in the allocation of reward funds and welfare funds for self-made production and sideline production. The division of the enterprise's plan into three parts shall be determined by the enterprise and approved by the direct superior management authority, serving as the basis for settling the revenue payment with the budget for the year 1980. In cases where it is difficult to distinguish between self-made production and sideline production, the sideline production regime shall temporarily apply to the part exceeding the state plan for that year. If the settlement of revenue payments with the budget encounters difficulties or impedes the enterprise's autonomy in production and business operations, thereby not encouraging enhanced economic accounting, the enterprise must promptly report to the higher-level management authority for discussion and agreement with the local finance authority to resolve each specific case.

Starting from the 1981 plan, strict compliance with the provisions of Decision No. 25-CP dated January 21, 1981, and the provisions of this Circular is mandatory. Enterprises must register quarterly targets with local provincial or municipal finance departments based on the approved 1981 quarterly or annual plan to immediately implement the quarterly reward system after quarterly settlements.

For industries with unique production and business characteristics, ministries and provincial or municipal people's committees are required to consult with the Ministry of Finance to formulate appropriate applications of this general system for industries requiring special consideration, while ensuring the necessary concentration and unity of state management in financial matters.