Circular No. 7640/TC/TCT on Value Added Tax (VAT) and cost accounting for gas cylinder shells

LETTER

DECISION NO. 7640 TC/TCT OF JUNE 21, 2005 ISSUED BY THE MINISTRY OF FINANCE ON VALUE-ADDED TAX AND EXPENSE ACCOUNTING FOR LPG CYLINDER SHELLS

Respectfully submitted to: Provincial Tax Departments under the Ministry of Finance

The Ministry of Finance has received documents from some enterprises producing and trading liquefied petroleum gas (LPG) requesting guidance on handling expenses for LPG cylinder shells and deposit payments for LPG cylinder shells. Regarding this issue, the Ministry of Finance guides the implementation uniformly as follows:

1. Value-added tax applicable to LPG cylinder shells:

- In the case of selling LPG cylinder shells: enterprises producing and trading LPG and business establishments dealing in LPG cylinder shells must issue VAT invoices, calculate VAT, declare and pay VAT on the sale of LPG cylinder shells like other goods.

- In the case of renting LPG cylinder shells: businesses that sell but implement a rental method for customers must have specific contracts between the lessor and lessee, specifying terms such as rental period, number of rented LPG cylinder shells, value, deposit, periodic rental payment... The rental income from renting LPG cylinder shells must be recorded as revenue and subject to VAT on this revenue. If the rental fee is deducted from the deposit for LPG cylinder shells, the lessor still must declare and pay VAT on the rental income from renting LPG cylinder shells. Deposit money from renting LPG cylinder shells must be tracked separately and not included in revenue or income.

- Apart from the cases of selling LPG cylinder shells and renting mentioned above, in other business forms such as renting or lending without collecting deposits but receiving payments in one form (bets, first-time sales including cylinder cost), revenue and expenses should be determined for corporate income tax as follows: when LPG production and trading companies, LPG retailers (units owning LPG cylinder shells) receive advance payments or deposits from customers, these units must record the advance payments or deposits for LPG cylinder shells in the deposit tracking account. When allocating costs (as guided in Point 2 of this Circular), the unit must transfer the corresponding proportion from the deposit into revenue when determining corporate income tax. Upon settlement of the loan contract for LPG cylinder shells, after deducting incurred costs, the unit owning the LPG cylinder shells records the amount received (or paid) from lending LPG cylinder shells as income (or incurred costs in the period) when determining corporate income tax. In the case of lending, betting, or depositing, there is no need to pay output VAT (since the final product is LPG).

Input VAT on LPG cylinder shells is declared and deducted according to the provisions at Subpoint c, Point 1, Section III, Part B, Circular No. 120/2003/TT-BTC dated December 12, 2003 of the Ministry of Finance. The basis for determining deductible input VAT on LPG cylinder shells is the VAT amount stated on the VAT invoice when purchasing LPG cylinder shells. For input VAT on LPG cylinder shells arising before December 31, 2004, if enterprises have already accounted for it as production and business expenses, no adjustment is required.

2. Calculating LPG cylinder shell expenses to determine corporate income tax:

LPG cylinder shells of enterprises producing and trading LPG with a value below 10 million dong per shell are considered tools and equipment serving production and business activities. Currently, enterprises producing and trading LPG, wholesale and retail dealers are implementing inconsistently regarding accounting for LPG cylinder shells and the period for allocating their value. To implement uniformly nationwide, the Ministry of Finance stipulates that the allocation period for the value of LPG cylinder shells included in production and business expenses shall be a minimum of five years.

In the case where enterprises are currently accounting for LPG cylinder shells as fixed assets, they must adjust and account for them as tools and equipment. For LPG cylinder shells that have been depreciated (or allocated) and the remaining depreciation (or allocation) period is less than five years, continue to allocate for the remaining years but still ensure that the entire value of the LPG cylinder shell is allocated over a period of no less than five years.

The Ministry of Finance provides guidance for provincial tax departments to be aware and implement. During the implementation process, if any difficulties arise, please report to the Ministry of Finance for timely resolution.