CIRCULAR

PROVIDING ADDITIONAL GUIDANCE ON VALUE ADDED TAX FOR THE ACTIVITIES IN CAPITAL CONSTRUCTION, PRODUCTION AND PROCESSING OF PRODUCT OF AGRICULTURE AND FORESTRY

In furtherance of the Law on Value Added Tax passed by the National Assembly of the Socialist Republic of Vietnam, IXth Legislature, 11^th Session on May 10, 1997 and Decree No.28/1998/ND-CP of May 11, 1998 and Decree No.102/1998/ND-CP of December 21, 1998 of the Government providing details for the implementation of the Law on Value Added Tax.
In furtherance of Circular No.89/1998/TT-BTC of June 27, 1998 and Circular No.175/1998/TT-BTC of December 24, 1995 of the Ministry of Finance guiding the implementation of Decree No.28/1998/ND-CP and Decree No.102/1998/ND-CP of the Government providing details for the implementation of the Law on Value Added Tax.
The Ministry of Finance hereby gives the following additional guidance for the implementation of the Law on Value Added Tax for the activities in capital construction production and processing of products of agriculture and forestry:

I. CAPITAL CONSTRUCTION IN AGRICULTURAL AND FORESTRY PRODUCTION

1. Payers of VAT

Capital construction activities such as land reclamation, designing and building of orchards and infrastructure constructions in service of agricultural and forestry production conducted by outside units, activities conducted by the capital construction sector of the unit itself which accounts its business results separately are collectively called construction B party.

2. Not subject to VAT

Capital construction activities mentioned in Point 1 above are conducted by the unit itself without separately accounting its production and business results.

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a/ The VAT rate is 5 per cent for capital construction activities such as land reclamation, building canals and channels in the fields, embankment works, building roads and other services in direct service of agriculture and forestry, such as ploughing, harrowing, dredging canals, ponds and lakes, planting and tending trees, preventing and fighting plant diseases and pest, first fruit harvest.

b/ VAT rate is 10per cent for other capital construction activities not listed in paragraph a of this Point.

4. VAT deduction

a. For B parties

Construction B parties subject to output VAT shall enjoy deduction of input VAT and shall have to pay tax as follows:

VAT to be paid = Output VAT - Input VAT

Output VAT

=

Value of project(or item of project)

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Tax rate (percent) of that capital construction goods or service

Input VAT shall be deducted from the whole of materials and raw materials and fuel bought from outside by the construction B party for the realization of the volume of capital construction provided fully with vouchers of deducted VAT.

Construction B parties shall declare and pay VAT annually according to the progress of construction or the volume of work completed paid by the investor (party A) for each period, each drive or each year.

b/ For the capital construction conducted by the sector itself:

For the activities of the sector which conducts capital construction by itself without accounting its production and business results, they are not listed in the category subject to VAT as defined in Point 2 above. At the same time they are not entitled to deduction of input VAT. The materials, raw materials and fuel bought from outside in service of self-conducted capital construction with input VAT shall be accounted wholly into the capital construction cost of the project or item of project in order to determine the value of the fixed asset converted into asset for production and business.

c/ For party A

When taking over the projects or items of project of capital construction, party A shall put them into production and business and determine the value of the fixed asset which is the value handed over by the self conducted capital construction sector. The value paid to construction B party shall include all the payment value including VAT in order to calculate the depreciation of fixed asset and preserve the capital. At the same time this shall serve as basis for the drafting of the estimate and final settlement of capital construction investment capital.

II. VAT ON AGRICULTURAL AND FORESTRY PRODUCTS

1. The production establishments producing commodity products which are agricultural and forestry products without processing and directly sold to the market shall not be subject to VAT as stipulated in Point 1, Section II, Circular No.89/1998/TT-BTC and shall not enjoy deduction of VAT. The materials, raw materials, fuel and materials bought from outside and subject to VAT in service of production process shall be accounted into the production cost of the agricultural and forestry products.

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The unit shall apply the VAT in the form of deduction on the principle:

VAT to be paid = Output VAT - Input VAT

Of which:

a/.

Output VAT

=

Selling price of goods without VAT

x

VAT rateof that kind of goods

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+ For raw materials which are agricultural and forestry products directly bought from the producer at government-set price and sold by the material supply farm which produce in excess or products contributed to make up for the expenses in enterprise management; products contributed to set up funds of the enterprise; products contributed to the farm by farmers households in replacement of tax on agricultural land use for the farm to organize production in the form of quota assignment and raw materials put into production and processing by the unit on its own initiative. The unit shall draw up the table according to form No.04/GTVT (Table of purchases of agricultural, forestry and aquatic products of the direct producer) stipulated in Circular No.89/1998/TT-BTC.

On the basis of the table of quantity and the actual purchasing price paid to the seller for input VAT deduction from the processing stage, the deduction of VAT shall be as follows:

Deducted VAT

=

Quantity of raw materials purchased

x

Purchasing price of the raw materials unit put into processing according to the prescribed table

x

Percentage (percent) of the type of the tax deducted commodity products.

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The purchasing price of raw materials put into processing according to the table is the purchasing price or the direct payment price for the producer of that product purchased directly by the unit in such forms as purchase at the place of production, purchase in the purchasing station or purchased at the factory itself.

For the types of products produced by the farm itself, the price put into processing is the production cost of the product. In particular, for the products contributed by the farmers themselves in lieu of the tax on land use, it is the local price for tax calculation.

+ The materials, raw materials, fuels and other materials and services purchased from outside in service of processing and the expenses in the process of consumption of VAT-subject products shall enjoy deduction of input tax as generally stipulated in Circular No.89/1998/TT-BTC.

3. For the materials bought by the enterprise to supply the farmers households and personnel of the farm or to sell outside the farm to organizations, households and individuals in the form of trading business, they must be monitored and accounted separately as in commercial business. The input VAT must be determined (those purchased from outside with VAT) and the output VAT must be integrated when selling commodity materials in order to determine the VAT to be paid for the materials trading operations.

III. AGRICULTURAL AND FORESTRY PRODUCTS WHICH ARE EXPORTS

When exported, the agricultural and forestry products shall enjoy the zero (0) per cent VAT rate but shall not enjoy deduction according to the 3 - 5per cent rate on this value as with the agricultural and forestry products which have gone through processing for domestic consumption. They shall only receive deduction and tax remission in the following cases:

- Input VAT at the stage of processing for agricultural and forestry products already processed.

- The actually remitted VAT in the commercial stage for the agricultural and forestry goods bough by the export unit through trading units having VAT vouchers as prescribed.

All goods purchased for export without necessary VAT vouchers for the deduction eligible types shall not enjoy tax reimbursement (tax deduction) when being exported.

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This Circular takes effect on the 1^st of January 1999. In the process of implementation if any difficulty arises, the units and agencies should report to the Ministry of Finance for study and settlement.

FOR THE MINISTER OF FINANCE
VICE MINISTER




Pham Van Trong