Circular No. 75/2007/TT-BTC guiding the pilot mechanism for mobilizing funds to support anti-smuggling and anti-counterfeiting activities related to cigarette smuggling and fake cigarette production and sale.

CIRCULAR

Pursuant to Decree No. 77/2003/NĐ-CP dated July 1, 2003 of the Government stipulating the functions, tasks, powers, and organizational structure of the Ministry of Finance.

Pursuant to the directives of the Prime Minister in Official Letter No. 7538/VPCP-V.I dated December 26, 2006 and Official Letter No. 319/VPCP-V.I dated January 16, 2007 of the Office of the Government.

The Ministry of Finance hereby issues guidelines on the implementation of the pilot mechanism for raising and managing and using funds to support anti-smuggling and anti-counterfeiting work of cigarette sticks and illegal production and sale of cigarettes as follows:

I. GENERAL PROVISIONS

Article 1. These Circulars guide the mechanism for raising funds from enterprises engaged in the production and business of cigarettes to form a Support Fund for anti-smuggling and anti-counterfeiting work of cigarette sticks and illegal production and sale of cigarettes (hereinafter referred to as the Fund) and the management and use of this Fund.

Article 2. The contributors to the Fund formation are enterprises engaged in the production and business of cigarettes belonging to the Vietnam Tobacco Association and other enterprises engaged in the production and business of cigarettes operating legally in Vietnam who voluntarily contribute funds to the Fund (hereinafter referred to as the enterprise).

Article 3. Beneficiaries of the Fund include: direct functional forces implementing investigative, verification, inspection, arrest, handling, and destruction activities of smuggled cigarette sticks and counterfeit cigarettes; the Central Steering Committee against Smuggling, Counterfeiting, and Commercial Fraud and its permanent office (hereinafter referred to as the Central Steering Committee 127); Provincial Steering Committees against Smuggling, Counterfeiting, and Commercial Fraud and their permanent offices (hereinafter referred to as the Local Steering Committees 127) directly implementing guidance and coordination with forces to arrest and handle the destruction of smuggled cigarette sticks and counterfeit cigarettes.

Article 4. The Vietnam Tobacco Association is responsible for mobilizing, managing, and using the Fund according to the guidelines set forth in these Circulars. The amount of funds used annually to support anti-smuggling and anti-counterfeiting work of cigarette sticks and illegal production and sale of cigarettes, allocated by the Vietnam Tobacco Association to contributing enterprises, shall be accounted for as reasonable expenses when determining corporate income tax.

II. CONTENT OF THE FUND RAISING AND USE MECHANISM

1. Principles of fund contribution mobilization and Fund usage

1.1. Principles of fund contribution mobilization for the Fund:

- The total annual contribution level for the Fund is determined based on the actual number of smuggled cigarettes and counterfeit cigarettes seized and destroyed in the previous year; the forecast for the planned year; and the current state regulations on the management and disposal of confiscated assets and means by the state treasury due to violations of the law.

- Each enterprise's contribution level to the Fund must be publicly disclosed, ensuring fairness and equality among enterprises, encouraging enterprises with favorable conditions to contribute more than the average level.

- All funds contributed by enterprises to establish this Fund shall be deposited into a separate account at a bank under the name and management of the Vietnam Tobacco Association.

1.2. Principles of Fund management and use:

- The Fund shall be used to provide additional support to the beneficiaries mentioned in Point 3, Section I of these Circulars to carry out inspection, prevention, arrest, handling, destruction of smuggled cigarette sticks and counterfeit cigarettes, and coordination, training sessions, interim reviews, final summaries, commendations, and dissemination of laws related to anti-smuggling and anti-counterfeiting work of cigarette sticks and illegal production and sale of cigarettes. The Fund shall not be used for unrelated purposes.

- Payment to functional forces in anti-smuggling and anti-counterfeiting work of cigarette sticks and counterfeit cigarettes shall be based on the actual quantity of cigarettes seized and destroyed recorded in the Seizure Decision of the arresting and violation handling agency and the Destruction Record of smuggled cigarette sticks and counterfeit cigarettes by the Destruction Handling Committee.

- The Fund must be strictly managed and used for its intended purpose; at the end of the fiscal year, the Vietnam Tobacco Association must submit a report on the situation of Fund mobilization and use to the local Tax Bureau where the enterprise has its main office.

- Units using the funds must separately track and account for the support funds; establish a transparent and open system for fund use. The head of the unit using the support funds shall decide on specific expenditure levels based on the contents listed in Point 3, Section II of these Circulars, appropriate to the unit's work, and bear direct responsibility before the superior management authority. Unspent funds may be carried over to the next year for continued use.

2. Budget preparation and notification of contribution levels to the Fund:

- Annually, based on the actual situation of cigarette smuggling and illegal production and sale of cigarettes, the plans for organizing and implementing anti-smuggling and anti-counterfeiting work of cigarette sticks and counterfeit cigarettes by the Central Steering Committee 127, and the forecast of the quantity of cigarettes seized and destroyed and the required support funds calculated per actual seized and destroyed cigarette pack as specified in Item 3.1, Point 3, Section II of these Circulars, the Vietnam Tobacco Association will coordinate with cigarette producing and trading enterprises to prepare a budget for the total amount of funds to be raised through contributions to the Fund.

- Based on the annual cigarette production plan and the budget for the amount of funds to be raised through contributions to the Fund (after deducting voluntary contributions from enterprises exceeding the general contribution level), the Vietnam Tobacco Association will determine the planned contribution rate applicable to all enterprises.

Example: The cigarette production revenue plan of the tobacco industry in 2008 is 15,000 billion VND. The budget for the total amount of funds to be raised through contributions to the Fund is 45 billion VND, of which Enterprise A voluntarily contributes 50%, thus the amount of funds needed to be raised in 2008 to determine the general contribution rate for the remaining enterprises is 22.5 billion VND. The planned contribution rate applicable to the remaining enterprises is calculated as follows:

22.5 billion VND / 15,000 billion VND = 0.15%

||| The Vietnam Tobacco Association publicly notifies enterprises about the projected total amount of funds to be raised for the Fund and the contribution rate (%) applicable to all enterprises. For the year 2007, the contribution rate to the Fund is 0.12% of the projected revenue.

||| Based on the planned revenue of each enterprise for the year, the Vietnam Tobacco Association determines the projected annual contribution level to the Fund for each enterprise and re-notifies the enterprises as a basis for implementation, while also sending it to the Ministry of Finance (General Department of Taxation) and the local tax authority where the enterprise's main office is located for monitoring (Form No. 01).

||| Each quarter, based on the common contribution rate announced by the Vietnam Tobacco Association and the actual revenue achieved in the previous quarter, enterprises proactively calculate the amount of funds to be contributed for that quarter (for enterprises voluntarily contributing at a higher rate than the common rate, the contribution amount will be calculated according to the agreed rate with the Vietnam Tobacco Association) and transfer the money to the Vietnam Tobacco Association within the first ten days of each quarter.

||| 3. Use of the Fund

The Fund shall be used to support the following expenditures:

||| 3.1. Expenditure to support functional forces directly implementing investigative activities, verification, organization of inspections, arrests, handling, and destruction of smuggled cigarette sticks, counterfeit cigarettes, including the following items:

||| - Expenses for investigation, purchasing information, verification, arrest, transportation, storage, appraisal, receipt and delivery, night shift allowances, overtime pay, training and professional development, publicity, interim review, final summary, meetings of the Handling Council, destruction;

||| - Awards for collectives and individuals with outstanding achievements in the work of preventing and combating smuggled cigarettes and counterfeit cigarettes.

||| The amount of funding support for direct forces is determined based on the number of cigarette packs of smuggled cigarettes and counterfeit cigarettes seized and destroyed (recorded in the Decision on Seizure and Destruction of Smuggled Cigarette Sticks and Counterfeit Cigarettes and the Record of Destruction of Smuggled Cigarette Sticks and Counterfeit Cigarettes) and the support rate per pack of cigarettes actually seized and destroyed, differentiated by price, specifically: VND 1,000 per pack for cigarettes priced at VND 6,000 per pack or more; VND 500 per pack for cigarettes priced below VND 6,000 per pack.

||| The selling price of cigarettes referred to herein is the average market selling price. The list of cigarette types priced at VND 6,000 per pack or more and those priced below VND 6,000 per pack as the basis for supporting funding is determined annually by the Vietnam Tobacco Association and the Central Steering Committee 127.

||| 3.2. Expenditure to support the Central Steering Committee 127 and the Steering Committees 127 of localities in organizing and directing the implementation of measures to prevent and combat smuggling of cigarette sticks and production and sale of counterfeit cigarettes, including the following items:

||| - Expenses for building plans, schemes, and operation proposals on preventing and combating smuggling of cigarette sticks and production and sale of counterfeit cigarettes;

||| - Expenses for organizing specialized conferences, seminars, and training sessions on implementing plans and coordinating measures among relevant ministries, sectors, and agencies;

||| - Expenses for implementing publicity, mobilization, and dissemination of laws on preventing and combating smuggling of cigarette sticks and production and sale of counterfeit cigarettes;

||| - Expenses for organizing regular or spot checks on preventing and combating smuggling of cigarette sticks and production and sale of counterfeit cigarettes in localities;

||| - Expenses for interim reviews, final summaries, and awards to encourage organizations and individuals with outstanding achievements in the work of preventing and combating smuggling of cigarette sticks and production and sale of counterfeit cigarettes.

||| 3.3. In cases where smuggled cigarette sticks and counterfeit cigarettes were seized in 2006 but destroyed in 2007, they shall be implemented in accordance with the guidelines set forth in this Circular.

||| 4. Procedure for Implementing Funding Support from the Fund

||| The Vietnam Tobacco Association implements funding support for the prevention and control of smuggling of cigarette sticks and production and sale of counterfeit cigarettes according to the following procedure:

||| 4.1. For direct functional forces implementing seizures, handling, and destruction of smuggled cigarettes and counterfeit cigarettes:

||| Based on the notification document of the Local Steering Committee 127 regarding the actual quantity and type of smuggled cigarettes and counterfeit cigarettes seized and destroyed, the Vietnam Tobacco Association determines the amount of funding support for the direct forces.

||| The transfer of funding support to the direct forces is carried out in batches of seized and destroyed cigarettes through the Local Steering Committee 127 in two steps as follows:

||| Upon receiving the notification from the Local Steering Committee regarding the quantity and type of seized cigarettes (accompanied by the Decision on Seizure and Destruction of Smuggled Cigarette Sticks and Counterfeit Cigarettes), the Vietnam Tobacco Association temporarily advances 50% of the determined funding support for the batch of seized cigarettes.

||| Upon receiving the notification from the Local Steering Committee regarding the quantity and type of seized cigarettes that have been destroyed (accompanied by the Record of Destruction of Smuggled Cigarette Sticks and Counterfeit Cigarettes), the Vietnam Tobacco Association pays the remaining 50% of the funding support.

||| Within the latest ten working days from the date of receipt of the notification document from the Local Steering Committee and accompanying documents, the Vietnam Tobacco Association transfers the funding to the account of the Local Steering Committee.

||| Each time the Local Steering Committee receives funding transferred from the Vietnam Tobacco Association, the Local Steering Committee is responsible for advancing or paying the direct functional forces seizing and destroying smuggled cigarette sticks and counterfeit cigarettes.

||| 4.2. For the Central Steering Committee 127 and local Steering Committees:

||| Based on the results of seizures and destruction of smuggled cigarettes and counterfeit cigarettes each quarter, the Vietnam Tobacco Association transfers funding to the Central Steering Committee 127 and the Local Steering Committees where smuggled cigarette sticks and counterfeit cigarettes were seized and destroyed within the first ten days of the next quarter.

||| The maximum amount of funding support for the activities of the Central Steering Committee 127 and Local Steering Committees does not exceed 10% of the funding support for direct forces seizing cigarettes as specified in Subpoint 4.1 above, of which 3% is allocated to the Central Steering Committee 127 and 7% is allocated to the Local Steering Committees where smuggled cigarette sticks and counterfeit cigarettes were seized and destroyed.

||| 5. Settlement of the Fund

At the end of each year, the Vietnam Tobacco Association shall be responsible for settling the situation regarding the mobilization, management, and utilization of the Fund, and informing enterprises to serve as the basis for implementation, specifically including the following contents:

- The total actual funds mobilized during the year, detailed by contributing enterprise;

- The quantity and types of smuggled cigarette sticks and counterfeit cigarettes seized and destroyed during the year; the level of financial support calculated per pack of cigarettes;

- The total actual financial support provided to competent forces and the Central Directive 127 Steering Committee, local Directive 127 Steering Committees, detailed by recipient (Form No. 02);

- The balance of the Fund as of December 31.

Enterprises shall be responsible for submitting their actual revenue results achieved during the year to the Vietnam Tobacco Association no later than January 15 of the following year for consolidation of the industry's overall revenue results.

Based on the amount of Fund usage and the industry's overall revenue results for the year, the Vietnam Tobacco Association shall calculate and determine the actual annual contribution ratio for all enterprises, the actual amount of Fund contributions that have been utilized and recorded as reasonable expenses, and the surplus or deficit compared to the budgeted contributions of each enterprise at the beginning of the year (Form No. 03), and inform the enterprises for their knowledge and as the basis for recording as reasonable expenses when determining corporate income tax revenue; simultaneously sending to the Ministry of Finance (General Department of Taxation) and the local tax authority where the enterprise is headquartered for monitoring.

If the amount recorded as reasonable expenses exceeds the amount contributed according to the initial budget, the enterprise must make up the shortfall by contributing additional amounts to the Fund. If the amount recorded as reasonable expenses is less than the amount contributed according to the initial budget, the excess can be carried forward to offset the amount required to be contributed to the Fund in the following year.

The notification from the Vietnam Tobacco Association according to Form No. 03 serves as a legal document to determine the reasonable expenses of each enterprise.

6. Regarding witnessing the destruction of smuggled cigarettes and counterfeit cigarettes

The destruction of smuggled cigarette sticks and counterfeit cigarettes shall be conducted periodically under the supervision of the Vietnam Tobacco Association, as follows:

- The agency or unit issuing the Decision to confiscate smuggled cigarette sticks and counterfeit cigarettes shall prepare a destruction plan and send it to the local Directive 127 Steering Committee where the smuggled cigarette sticks and counterfeit cigarettes were seized and destroyed, to notify the Vietnam Tobacco Association to dispatch representatives (including enterprises that contribute to the Fund such as British American Tobacco Vietnam Company and other tobacco manufacturing and trading enterprises) to witness the destruction of smuggled cigarette sticks and counterfeit cigarettes. Notifications about the destruction of smuggled cigarette sticks and counterfeit cigarettes must be sent to the Vietnam Tobacco Association at least seven days before the destruction takes place.

- The destruction of smuggled cigarette sticks and counterfeit cigarettes shall be carried out monthly, and if the quantity of seized cigarettes is large, multiple destructions may occur within the month.

- The destruction of smuggled cigarettes and counterfeit cigarettes shall be organized by the Destruction Committee and must prepare a record with signatures of all committee members in accordance with the guidance in item c, point 1.1, Section III, Circular No. 72/2004/TT-BTC dated July 15, 2004, issued by the Ministry of Finance guiding the management and handling of confiscated items and means seized for state funds due to administrative violations.

III. RESPONSIBILITIES OF THE VIETNAM TOBACCO ASSOCIATION

The Vietnam Tobacco Association shall be responsible for organizing the mobilization, management, and utilization of the Fund in accordance with this Circular and shall bear legal responsibility for the accuracy of the data reported by the Association as stipulated in point 5, Section II of this Circular.

For smuggled cigarette sticks and counterfeit cigarettes seized but not yet destroyed due to the advance payment of 50% of the financial support, the Vietnam Tobacco Association shall be responsible for urging the seizing and confiscating agencies to promptly carry out the destruction. In cases where there are no cigarettes to destroy, the Vietnam Tobacco Association shall recover the advanced financial support and report to the Central Directive 127 Steering Committee for handling.

Annually, the Vietnam Tobacco Association shall report on the mobilization, management, and utilization of the Fund to the Ministry of Finance and the Ministry of Trade.

IV. IMPLEMENTATION

1. This Circular shall take effect fifteen days after its publication in the Official Gazette.

2. The mechanism for mobilizing financial support for anti-smuggling and anti-counterfeiting work involving cigarettes and counterfeit cigarettes will be piloted over two years, 2007-2008. Each year, the Ministry of Finance shall lead and coordinate with the Central Directive 127 Steering Committee and the Vietnam Tobacco Association to conduct interim evaluations of the pilot mechanism's results.

3. During the implementation process, if any issues arise, agencies and units are requested to report to the Ministry of Finance for coordination in resolving them./.