Circular No. 62/2004/TT-BTC dated June 24, 2004 of the Ministry of Finance guiding the application of Value Added Tax rates according to the preferential import tariffs

CIRCULAR

GUIDING THE APPLICATION OF VALUE ADDED TAX RATES  ACCORDING TO THE PREFERENTIAL IMPORT TARIFFS

Pursuant to Value Added Tax (VAT) Law No. 02/1997/QH9 of May 10, 1997;

Pursuant to June 17, 2003 Law No. 07/2003/QH11 Amending and Supplementing a Number of Articles of the VAT Law;

Pursuant to the Government’s Decree No. 158/2003/ND-CP of December 10, 2003 detailing the implementation of the VAT Law and the Law Amending and Supplementing a Number of Articles of the VAT Law;

With a view to facilitating the VAT declaration and payment, the Finance Ministry hereby guides the application of the VAT rates according to the Preferential Import Tariffs as follows:

1. The Lists of goods and VAT rates applicable thereto (hereinafter called the VAT Lists for short), promulgated together with this Circular, have been drawn up on the basis of the Lists of goods in the Preferential Import Tariffs, promulgated together with the Finance Minister’s Decision No. 110/2003/QD-BTC of July 25, 2003. The goods in the VAT Lists are classified in the same way as the goods in the Preferential Import Tariffs, prescribed in the Finance Ministry’s Circular No. 85/2003/TT-BTC of August 29, 2003.

2. The VAT Lists fully specify the names of goods like the current Preferential Import Tariffs, provide guidance on the VAT rates up to 8-digit subheadings and provide a number of “Particularly” sections. The application of the VAT Lists is effected specifically as follows:

2.1. The VAT Lists, apart from providing guidance on the VAT rates for 4-digit headings or 6-digit subheadings or 8-digit subheadings, also prescribe the VAT rates for the “Particularly” sections of the above-said headings and subheadings. Concretely:

- Goods items detailed in a “Particularly” section is subject to the VAT rate prescribed for them in that section.

- The VAT rate prescribed for each heading or 6-digit or 8-digit subheading shall apply to goods items under that heading or subheading, except for items specified in the “Particularly” sections.

Example 1: In heading 0210, the VAT rate prescribed for 8-digit subheadings is 5% or 10% while the section “Particularly: Meat and edible meat products, smoked; edible fine or raw powders of meat or meat products of heading 0210” is subject to the VAT rate of 10%. Therefore, the goods items mentioned in the “Particularly” section under 8-digit subheadings within heading 0210 are subject to the VAT rate of 10%. The other goods items not falling in the “Particularly” section are subject to the tax rate specified for each 8-digit subheading. For example: Smoked beef under subheading 0210.20.00 is subject to the tax rate of 10% while other kinds of beef under this subheading are subject to the tax rate of 5%.

Example 2: Within 6-digit subheading 0507.90, the VAT rate specified for 8-digit subheadings is 5% while the section “Particularly: Powder of tortoise-shell, whalebone and whalebone hair, horns, antlers, hooves, nails, claws and beaks under subheading 0507.90” is subject to the VAT rate of 10%. Therefore, the goods items mentioned in the “Particularly” section that fall under 8-digit subheadings within subheading 0507.90 are subject to the tax rate of 10%. The other goods items not belonging to the “Particularly” section shall be subject to the VAT rate specified for each 8-digit subheading within subheading 0507.90. For example: “Powder of tortoise-shell” under 8-digit subheading 0507.90.20 is subject to the VAT rate of 10% while the other goods items under this subheading are subject to the tax rate of 5%.

Example 3: 8-digit subheading 8483.90.15 is subject to the VAT rate of 5% while the section “Particularly: Items under subheading 8483.90.15 used for bicycles” is subject to the VAT rate of 10%. Therefore, goods items mentioned in the “Particularly” section of subheading 8483.90.15 are subject to the VAT rate of 10% while the other goods items under this subheading are subject to the VAT rate of 5%.

2.2. The VAT Lists prescribe only one VAT rate in the VAT rate column. If an import goods item is subject to a tax rate specified at Point 2 or 3, Section II, Part B or not subject to VAT as prescribed in Section II, Part A of the Finance Ministry’s Circular No.120/2003/TT-BTC of December 12, 2003, such item shall enjoy the VAT rate prescribed in Circular No.120/2003/TT-BTC.

Example 1: In the VAT Lists, the VAT rate for subheading 9020.00.10 “Breathing appliances” is 10%. That means all goods items under this subheading are subject to the VAT rate of 10%. However, if the appliances under subheading 9020.00.10 are determined as for medical use as prescribed at Point 2.3, Section II, Part B of the Finance Ministry’s Circular No.120/2003/TT-BTC, they shall be subject to VAT at the rate of 5%.

Example 2: In the VAT Lists, the VAT rate for subheading 8524.32.90 “Others” within the group of “Discs for laser reading systems, only for reproducing sound” is 5%. That means discs under subheading 8524.32.90 are subject to the VAT rate of 5%. However, if the enterprises have imported discs already recorded with documentaries, reportage or science films… and fully meeting the conditions prescribed at Point 10, Section II, Part A of the Finance Ministry’s Circular No.120/2003/TT-BTC, they shall not be subject to VAT.

2.3. Goods items not subject to VAT are symbolized as (*) in the VAT rate column of the VAT Lists.

Example 1: Imported bank notes under heading 4907, subheading 4907.00.20, are not subject to VAT.

Example 2: Salt of heading 2501 is not subject to VAT.

Example 3: Rice used as seed under heading 1006, subheading 1006.10.10, is not subject to VAT.

3. Among goods items being animal breeds or plant varieties, such as breeding eggs and animals, saplings and seeds, sperms, embryos and genetic materials, under headings and subheadings in Chapters 1 thru 12, some items are not specified as for breeding but categorized as the common ones and subject to the VAT rate of 5% in the VAT Lists. In cases where the headings and subheadings in these chapters contain goods items determined as meeting the criteria for breeding and fully meeting the conditions prescribed at Point 2, Section II, Part A of the Finance Ministry’s Circular No.120/2003/TT-BTC, such goods items shall not be subject to VAT.

Example: Subheading 0301.99.30 “Other marine fish” is subject to the VAT rate of 5%, meaning that goods items under this subheading are subject to the VAT rate of 5%. In cases where the marine fish under subheading 0301.99.30 is determined as being used for breeding and fully meeting the conditions prescribed at Point 2, Section II, Part A of the Finance Ministry’s Circular No.120/2003/TT-BTC, it shall not subject to VAT.

4. Tyres imported in complete sets of tyres, tubes and fairings are subject to the corresponding VAT rate prescribed in the tax rate column for tyres. If units import these parts separately (tubes, fairings), these parts shall be subject to the tax rate prescribed for each goods item.

5. Fishing nets, net robes and fibres for net knitting, including fishing nets of all types, fibres of all types and net robes used specifically for net knitting, irrespective of the materials used for the production thereof, are subject to the VAT rate of 5%.

6. Goods being base chemicals; the List of pharmaceutical materials used as raw materials for production of curative and preventive medicines, which are the goods items specified in Appendices 1 and 2 to the Finance Ministry’s Circular No.120/2003/TT-BTC, are subject to the VAT rate of 5%. Other goods items not mentioned in the above Appendices 1 and 2 shall be subject to the tax rates prescribed in the VAT Lists.

7. Goods fully meeting the conditions for being determined as weapons or military equipment exclusively used for defense and/or security purposes are not subject to VAT under the provisions at Point 19, Section II, Part A of the Finance Ministry’s Circular No.120/2003/TT-BTC.

8. For goods under headings and subheadings being machinery or equipment spare parts or accessories in Chapters 84 thru 90 (except for spare parts and accessories of automatic data-processing machine defined at Point 2.35, Section II, Part B of Circular No.120/2003/TT-BTC), that are subject to the tax rate of 5%, this tax rate shall apply only to spare parts and accessories made of metal. Non-metal spare parts and accessories under these headings and subheadings shall be subject to the VAT rate of 10%.

9. For goods being spare parts of mechanical engineering-electric-electronic products, which are in complete or incomplete sets:

- The complete sets of spare parts are subject to the same VAT rate prescribed for the complete product unit;

- The non-complete sets of spare parts are subject to the VAT rate prescribed for each spare part or accessory.

- The imported non-complete sets of spare parts that are entitled to the preferential import tax rate according to the localization rate prescribed for the whole detailed list thereof, are subject to the VAT rate applicable to the complete product unit.

- The automobile spare parts in CKD or IKD form shall be subject to the VAT rate of 5%.

10. The VAT rates specified in the VAT Lists shall apply to import goods uniformly from the importation stage to the domestic consumption stage and be used to determine the VAT rates applicable to the goods produced and traded at home.

This Circular takes effect 15 days after publication in the Official Gazette and applies to all import goods declarations already submitted to the customs offices as from the effective date of this Circular.

In the course of implementation, if any VAT rates provided for in these Lists fail to conform with the provisions of Circular No.120/2003/TT-BTC or vary regarding the same category of import goods and home-made goods, the local tax agencies and the customs offices shall still collect VAT according to the announced rates, and at the same time synthesize the situation and report it to the Finance Ministry. The Finance Ministry shall base itself on the provisions of the Government’s Decree No.158/2003/ND-CP of December 10, 2003 to guide the uniform implementation.