Circular No. 163/1998/TT/BTC dated December 17, 1998 of the Ministry of Finance guiding the implementation of the Law on value added tax regarding air transport and service flight activities

CIRCULAR

GUIDING THE IMPLEMENTATION OF THE LAW ON VALUE ADDED TAX REGARDING AIR TRANSPORT AND SERVICE FLIGHT ACTIVITIES

Pursuant to the Law on Value Added Tax No.02/1997/QH9 of May 10, 1997;

Pursuant to the Government's Decree No.28/1998/ND-CP of May 11, 1998 detailing the implementation of the Law on Value Added Tax; and

Pursuant to the Ministry of Finance's Circular No.89/1998/TT-BTC of June 27, 1998 guiding implementation of the Government's Decree No. 28/1998/ND-CP of May 11, 1998 detailing the implementation of the Law on Value Added Tax;

With a view to making the implementation of the Law on Value Added Tax suitable to the organization, operation, production and business of air transport, the Ministry of Finance provides specific guidance for calculation, declaration and payment of VAT on such activities as follows:

I. SUBJECTS LIABLE AND NOT LIABLE TO VAT AND THE VAT PAYERS

1. Subjects liable to VAT:

Subjects liable to VAT are the following air transport and services flight activities:

- Air transport activities, which include:

+ Passenger and luggage transport;

+ Cargo transport

+ Other air transport activities

- Services flights, which include

+ Flights in service of oil and gas

+ Geological exploration flights;

+ Map photographing flights; and

+ Other services flights.

2. Subjects not liable to VAT:

2.1. International transport operations, International transports mean transport operations overseas and transports for journeys from Vietnam to foreign countries and vice versa, including domestic inter-hop international transports. A domestic inter-hop is a journey to foreign country(ies) and from foreign countries back home with a domestic flight hop and a ticket issued for the whole journey.

Example 1: Mr. A has an itinerary from Hanoi to Singapore; if an airline issues one ticket for Hanoi - Ho Chi Minh City- Singapore, the Hanoi - Ho Chi Minh City shall be called domestic inter-hop international transport; if it issues two tickets; one for Hanoi - Ho Chi Minh City and one for Ho Chi Minh City - Singapore, the Hanoi - Ho Chi Minh City hop shall be the domestic flight.

Mr. B has an air ticket from Paris to Hanoi; if he is issued one ticket for Paris - Ho Chi Minh Cty - Ha Noi, the Ho Chi Minh - Hanoi hop shall be the domestic inter-hop international transport; if he is issued two tickets; one for Paris - Ho Chi Minh City and one for Ho Chi Minh City - Hanoi, the Ho Chi Minh City - Hanoi shall be the domestic transport hop.

2.2. Activities involving the import of plane engines, technical supplies, parts, accessories and specialized equipment in service of air transport, which cannot be produced at home.

2.3. Activities involving the charter of airplanes, plane engines, parts and accessories from foreign countries.

2.4. Flight fuel and imported drinks in service of international flights, which shall be entitled to the system of goods temporarily imported for re-export.

3. The VAT payers

The VAT payers shall be companies involved in air transport and service flight business, which include:

- Independent cost - accounting companies; and

- Vietnam Airlines Corporation.

II. METHOD OF VAT CALCULATION

The VAT payer defined in Point 3, Section I hereof, shall calculate the payable VAT by the tax deduction method.

Payable VAT = Output VAT (1) - Deductible input VAT (2)

(1) The output VAT shall be determined on the basic of the VAT calculation prices multiplied (x) by the VAT rates. Prices for calculating VAT on domestic passenger transport operations are those not yet charged with VAT.

Example: A passenger transport ticket from Hanoi to Ho Chi Minh City:

- Prices not yet charged with VAT: VND 910,000

- VAT (10%): VND 91,000

- Price to be paid: VND 1,001,000

Where agents sell tickets at the designated prices, when giving tickets to passengers, they shall inscribe thereon the item as shown in the example above. The commissions enjoyed by agents shall not be liable to VAT and shall be accounted in the expenditures of the air transport business units.

The prices for calculating tax on luggage and goods transports and services flights are those not yet charged with VAT. Units engaged in air transport and service flight business, when collecting transport freights or service charges, shall issue VAT invoices to serve as the basic for ascertaining the output VAT.

(2) The deductible input VAT shall be the input VAT stated in the value added invoices issued when purchasing goods, services and assets used directly for domestic transport operations liable to VAT and shall be separately determined and accounted. Where separate accounting of the input tax on the goods and services used for operations liable to VAT and not liable to such VAT is impossible, the input VAT shall be allocated according to the ratio between taxable turnover and the total taxable and non - taxable turnovers.

Example 3. The Pacific Airlines Joint - Stock Corporation in the tax calculating period presents the following data:

- Turnover from international air

transport (non - taxable): VND400 billion

- Turnovers from domestic air transport

and other services liable to tax: VND 600 billion

- Output VAT for operation liable to tax (10%): VND 60 billion

- Input VAT applied to both taxable

and non - taxable operations: VND 20 billion

Supposing that the Joint-Stock Corporation does not make separate accounting of the input VAT on taxable and non - taxable operations, then, according to the stipulations mentioned above, the deductible input VAT on taxable operations shall be reckoned as follows:

- Determination of the ratio between the turnover from taxable operations to the total turnover:

- Deductible input VAT:

VND 20billion x 60% = VND 12billion

- Payable VAT for taxable operations:

VND 60billion - VND 12billion = VND 48billion

Where the input VAT levied on goods, services and fixed assets purchased in the period is accounted separately with a part for taxable operations and a part for non - taxable operations, and the remaining input VAT is applied jointly to both taxable and non-taxable operations, the amount of input VAT for taxable operations shall be determined by the amount of the input tax applied directly to operations liable to tax plus (+) the amount of the jointly applied input tax allocated as in the case referred above.

Example 4: Continued from example 3, supposing that for the total input VAT of VND20 billion on the purchased goods and services, the Airlines Joint-Stock Corporation can make separate accounting as follows:

- Applied to taxable operations VND4 billion.

- Applied to non - taxable operations VND1 billion.

- Applied jointly to both operations VND15 billion.

According to the above-mentioned stipulations, the deductible input VAT and the tax to be paid for the taxable operations shall be determined as follows:

+ The VAT accounted separately for taxable operations: VND 4 billion.

+ The part of the jointly accounted VAT allocated to taxable operations:

VND 15 billion x 60% = VND 9 billion.

+ The deductible input VAT on taxable operations:

VND 4 billion + VND 9 billion = VND 13 billion.

+ The VAT to be paid for taxable operations shall be:

VND 60 billion - VND 13 billion = VND 47 billion.

III. VAT DECLARATION AND PAYMENT

The companies shall make VAT registration and payment in localities where their head offices are located. Where a company has its dependent branches and regional offices based in other provinces, every month, these offices and dependent cost - accounting units shall base themselves on the purchase invoices and vouchers to make a list of invoices and vouchers of the purchase in goods and services used for air transport operations. The list shall be made in duplicate, one copy shall be forwarded to the company's headquarters and on shall be kept at the units.

The company shall have to synthesize the input VAT declarations from regional offices and dependent cost - accounting units and the input tax incurred at the company to draw up a general list of the input VAT of the air transport operations of the whole Company. The Company shall base itself on the turnover liable to VAT and turnovers not liable to VAT to reckon and allocate the deducted input VAT for taxable operations.

The companies that make the monthly VAT declarations shall make a detailed list of invoices and vouchers of goods and services bought in and sold out, the output VAT and the input VAT and the deducted amount pursuant to other list forms as stipulated in the Ministry of Finance's Circular No. 89/1998/TT/BTC of June 27, 1998 and shall send the tax declarations on the Tax Departments in localities where their headquarters are located and shall pay VAT according to the stipulated regime.

IV. ORGANIZATION OF IMPLEMENTATION

1. The Vietnam Airlines Corporation, the Air Transportation Company and the Air Service Company shall have to guide their attached units to make VAT declaration, calculation and payment according to the guidance provided herein.

2. Regarding invoices and vouchers, the units shall comply strictly with the system of invoices and vouches. Where the use of invoices printed by the units is necessary, registration of the same must be made with the tax offices in accordance with the stipulations.

3. This Circular shall take effect as of January 1, 1999. Other matters, if not be guided herein, shall comply with the stipulations in the Ministry of Finance's Circular No. 89/1999/TT/BTC of June 27, 1998.

The units shall report any difficulties that may arise in the course of implementation to Ministry of Finance for consideration and resolution.