CIRCULAR

GUIDING THE ELABORATION OF COST ESTIMATES OF CAPITAL CONSTRUCTION PROJECTS UNDER THE LAW ON VALUE ADDED TAX AND THE LAW ON ENTERPRISE INCOME TAX

Pursuant to Decree No.28/1998/ND-CP of May 11, 1998 of the Government detailing the implementation of the Law on Value Added Tax; Decree No.30/1998/ND-CP of May 13, 1998 detailing the implementation of the Law on Enterprise Income Tax;
Pursuant to Decree No.28/CP of March 28, 1997 of the Government on renewing the wage and income management in State enterprises;
Pursuant to Directive No.41/1998/CT-TTg of December 17, 1998 of the Prime Minister on the continued organization of implementation of new tax laws;
Pursuant to Circular No.89/1998/TT-BTC of June 27, 1998 of the Ministry of Finance guiding the implementation of Decree No.28/1998/ND-CP;
In order to strictly manage the capital invested in the capital construction and make the price determination and management compatible with the new management mechanism; after consulting the Ministry of Finance, the Ministry of Construction hereby guides the elaboration of cost estimates of capital construction projects under the Law on Value Added Tax and the Law on Enterprise Income Tax, as follows:

I. REGARDING THE VALUE OF CONSTRUCTION AND INSTALLATION COST ESTIMATES

The value of after-tax construction and installation cost estimates of a construction project includes the value of pre-tax construction and installation cost estimates and the output value added tax amount. In which:

1. The value of pre-tax construction and installation cost estimates

The value of pre-tax construction and installation cost estimates is the price for value added tax calculation, including direct costs, general costs and pre-calculated taxable incomes. The above-said costs shall be determined according to the norms of materials consumption, labor and machinery utilization,... and the regional price index in each period set by the competent agencies.

1.1- Direct costs:

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1.1.1- Materials costs:

Such costs shall cover main, auxiliary and rotatory materials, which are calculated according to the capital construction unit prices (unit prices set by provinces and cities or project unit prices). The prices of materials and supplies to serve as basis for calculating materials costs in the capital construction unit prices shall not include the input value added tax, which has been paid by the construction enterprises when purchasing such materials and supplies in service of project construction and installation.

When the materials prices vary, the difference between the non-value added tax prices periodically announced by the competent agency(ies) and those already included in the capital construction unit prices shall be determined and directly accounted into materials costs in the cost estimates.

1.1.2- Labor costs:

Labor costs in the construction and installation cost estimates include basic wages, allowances of wage nature and expenses to be paid according to the prescribed regime to construction and installation workers, which may be directly assigned to such workers in order to calculate the normative pay for one workday. On this principle, the labor costs in the capital construction unit prices shall be determined as follows:

- For the unit prices set by the provinces and centrally-run cities, the labor costs shall be calculated on the basis of the minimum wage level of 144,000 dong/month, wage grades specified in wage index A6 issued together with Decree No.05/CP of January 26, 1994 of the Government, itineracy allowance being equal to at least 20% of the minimum wage level, unstable production allowance being equal to an average of 10%, a number of subsidiary wages (for public holidays, new year festival, annual leave...), being equal to 12% and some other expenses which may be directly assigned to the laborers, being equal to 4% of the basic wage, respectively. For projects eligible for subsidiary wages, wage allowances and other regimes which have not been included in the above-said capital construction unit prices or eligible for itineracy allowance being higher than 20% or unstable production allowance being higher than 10% of the basic wage, such amounts shall be added to the labor costs as guided in the general index of construction and installation cost estimates value in Appendix 1 enclosed herewith.

- For capital construction unit prices of projects: The basic wage amounts, wage allowances and other regimes for construction and installation workers which the projects are eligible for according to the above-said calculation method shall be directly accounted into the unit prices.

1.1.3- Construction machine costs:

They shall be calculated according to the price index for working machine and equipment shifts issued by the Ministry of Construction (Decision No.1260/1998/QD-BXD of November 28, 1998), in which labor costs for working machine and equipment operators and repairers have already included contents specified in Point 1.1.2 above.

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1.2- General costs:

They shall be calculated by percentage (%) on the labor costs in the construction and installation cost estimates. These general costs are specified for each project type in Appendix 2.

Several expense items involved in the parameters calculated in the general costs have not yet included input value added tax.

1.3- Pre-calculated taxable incomes:

In the project construction and installation cost estimates, the taxable income shall be pre-calculated in percentage (%) of the direct costs and general costs for each project type specified in Appendix 2.

The pre-calculated taxable income amount shall be used to pay enterprise income tax and some other payable and deductible expense amounts. The income remainder shall be deducted for the establishment of funds according to the Regulation on financial management and business cost-accounting applicable to State enterprises issued together with Decree No.59/CP of October 3, 1996 of the Government.

2. Output value added tax:

Output value added tax shall be used to pay the input value added tax amount which the construction enterprise has paid in advance when purchasing materials, supplies, fuels, energy... but has not been calculated into materials cost, working machine cost and general costs in the pre-tax construction and installation cost estimates and value added tax amount that must be paid by the construction enterprise.

The output value added tax rate shall be determined according to regulations on construction and installation activities.

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II. REGARDING OTHER COSTS IN THE TOTAL CONSTRUCTION PROJECT COST ESTIMATES

1. Regarding the construction survey cost:

The construction survey cost estimates shall be made according to the norms of construction survey cost estimates, issued together with the Ministry of Construction’s Decision No.177/BXD-VKT of July 17, 1995 and Circular No.22/BXD-VKT of July 17, 1995 guiding the setting and management of construction survey costs. When value added tax is applied, such construction survey cost estimates shall be determined as follows:

1.1- The pre-tax construction survey cost estimates shall be equal to the construction survey cost estimates calculated according to the above stipulations multiplied by regulatory coefficient K = 0.95.

1.2- After-tax construction survey cost estimates shall be equal to pre-tax construction survey cost estimates mentioned in Point 1.1 plus (+) the output value added tax amount as prescribed.

2. Regarding the designing cost:

The designing cost estimates shall be made according to the construction project designing price index issued together with Decision No.179/BXD-VKT of July 17, 1995 of the Ministry of Construction. When value added tax is applied, such designing cost estimates shall be determined as follows:

2.1- The pre-tax designing cost estimates shall be equal to the designing cost estimates calculated according to the above stipulations multiplied by regulatory coefficient K = 0.96.

2.2- The after-tax designing cost estimates shall be equal to the pre-tax designing cost estimates specified in Point 2.1 plus (+) the output value added tax amount as prescribed.

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3. Regarding the investment and construction evaluation and consultancy costs:

The investment and construction evaluation and consultancy costs shall be calculated according to Decision No.501/BXD-VKT of September 18, 1996 of the Ministry of Construction. When value added tax is applied, the costs for such activities shall be determined as follows:

3.1- Pre-tax costs shall be equal to those calculated by percentage (%) as stipulated above multiplied by the pre-tax construction and installation value (or construction and installation value and equipment value, or equipment value).

3.2- After-tax costs shall be equal to pre-tax costs specified in Point 3.1 plus (+) the output value added tax amount as prescribed.

III. ORGANIZATION OF IMPLEMENTATION

The method of elaborating capital construction project cost estimates under the above guidance shall apply throughout the country as from January 1st, 1999. All previous stipulations which are contrary to this Circular shall be no longer effective. The documents of the branches and localities guiding the elaboration of cost estimates of projects of such branches and localities must not be contrary to provisions of this Circular.

For construction projects carried forward from previous years to 1999, the project investors and contractors shall have to make records according to the form set by the Ministry of Finance, clearly determining the value of construction volume performed till December 31, 1998 and the remaining construction volume to be performed from January 1st, 1999, in order to apply value added tax and enterprise income tax on the following principles:

- For project or project unit work volume already performed by December 31, 1998, value added tax shall not apply;

- For project or project unit work volume performed as from January 1st, 1999, value added tax shall be calculated under this Circular’s guidance.

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Any problems arising in the course of implementation shall be reported by the concerned branches and localities to the Ministry of Construction for study and settlement.

FOR THE MINISTER OF CONSTRUCTION
VICE MINISTER




Dang Nghiem Chinh

APPENDIX 1

THE GENERAL INDEX OF CONSTRUCTION AND INSTALLATION COST ESTIMATES VALUE OF CAPITAL CONSTRUCTION PROJECTS

No.

COST ITEMS

...

...

...

RESULT

I

DIRECT COSTS

1

Materials cost

VL

...

...

...

Labor cost

NC

3

Working machine cost

M

Total direct costs

...

...

...

T

II

GENERAL COSTS

P x NC

C

III

PRE-CALCULATED TAXABLE INCOMES

(T + C) x Prescribed percentage

TL

...

...

...

Pre-tax construction and installation cost estimates value

(T + C + TL)

Z

IV

OUTPUT VALUE ADDED TAX

Z x TGTGT

VAT

After-tax construction and installation cost estimates value

...

...

...

Gxl

In which:

Qj : Construction and installation work volume number j

Djvl, Djnc, Djm: Materials, labor and working machine costs in the capital construction unit prices of construction and installation work number j

F1: Wage allowances (if any) calculated according to the minimum wage which have neither been calculated nor fully calculated into the capital construction unit prices.

F2: Wage allowances (if any) calculated according to the grade wages, which have neither been included nor fully included in the capital construction unit prices.

h1n: Coefficient demonstrating the correlation between the labor cost in the unit prices and the minimum wages of wage groups number n:

- Group I : h1.1 = 2.342

- Group II : h1.2 = 2.493

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...

- Group IV: h1.4 = 2.796

h2n: Coefficient demonstrating the correlation between the labor cost in the unit prices and the grade wages of wage groups number n:

- Group I: h2.1 = 1.378

- Group II : h2.2 = 1.370

- Group III: h2.3 = 1.363

- Group IV: h2.4 = 1.357

P: General cost norms (%)

TL : Pre-calculated taxable incomes (%)

Gxl : After-tax construction and installation cost estimates value

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TGTGT : Value added tax rate prescribed for construction and installation activities.

VAT: Total output value added tax amount (including input value added tax paid when materials, supplies, fuels, energy... are purchased, and value added tax amount that must be paid by the construction enterprise).

APPENDIX 2

NORMS OF GENERAL COSTS AND PRE-CALCULATED TAXABLE INCOMES

Unit: %

Ordinal number

Types of construction and installation projects and works

General costs

...

...

...

1

Construction of common civil projects

55.0

5.5

2

Construction of houses with large concrete panels, assembly and erection of steel structures

63.5

5.5

3

...

...

...

67.5

5.5

4

Construction of hydroelectric power plants:

71.0

5.5

- Particularly, tunnels in hydroelectric power plants

74.0

...

...

...

- Small-sized hydroelectric power stations

64.0

5.5

5

Installation of power and water facilities, pipelines, technological machinery

63.5

5.5

6

...

...

...

66.0

6

7

Construction of railway surface

67.0

6

8

Construction of traffic bridges and culverts, slip-ways, dry-docks, ports

63.5

...

...

...

9

Construction of offshore projects

63.5

5.5

10

Construction of irrigation works (other than those by obligatory local laborers)

64.0

5.5

11

...

...

...

51.0

6

12

Construction of postal information or railway signal communications projects

70.0

5.5

13

Installation of petrol and oil tanks, petrol and oil conduits within depots

63.5

...

...

...

14

Installation of oil pipelines along prescribed routes

66.0

6

15

Construction of electricity transmission lines and transformer stations

71.0

6

16

...

...

...

74.0

6.5

17

Installation of machines in mine pits and tunnels

70.0

6.5

18

Afforestation, planting of industrial plants (rubber, tea, coffee...)

60.5

...

...

...

19

Forest enrichment, marking off and fostering

55.0

6.5

20

Reclamation and development of fields

55.0

5.5

21

...

...

...

2.5

5.0

Notes:

For the general costs in item 21, which are calculated on the costs for use of working machines and applicable only to projects and/or project units that use complete technological working lines, the separate construction and installation cost estimates shall be made.-