Joint Circular No. 92/2001/TTLT-BTC-BCN-TCHQ dated November 20, 2001 of the Ministry of Finance, Ministry of Industry and General Department of Customs guiding the implementation of the tax preference policy for the manufacture of motorcycles and their engines

JOINT CIRCULAR

GUIDING THE IMPLEMENTATION OF THE TAX PREFERENCE POLICY FOR THE MANUFACTURE OF MOTORCYCLES AND THEIR ENGINES

Proceeding from the directing opinion of the Prime Minister in Official Dispatch No. 938/CP-KTTH of October 18, 2001 regarding the policy on the localization of motorcycles;

In order to promote the domestic manufacture of motorcycle details and parts to substitute imports and at the same time create favorable conditions for the managerial work, the Ministry of Finance, the Ministry of Industry and the General Department of Customs hereby jointly guide the implementation of the tax preference policy for the manufacture of motorcycles and their engines as follows:

I. SUBJECTS OF APPLICATION

Enterprises established under the provisions of Vietnamese law and engaged in the manufacture and/or assembly of motorcycles and their engines (including foreign-invested enterprises) shall be the subjects of application of the tax preference policy prescribed in this Circular.

II. TERMS AND PHRASES USED IN THIS CIRCULAR ARE CONSTRUED AS FOLLOWS:

- Localization: means the process of domestic manufacture and assembly for substitution of imports.

- Details mean elements not yet assembled (or elements undetachable or indivisible).

- Detail assembly means a combination of many details fitted together.

- Parts mean combinations of many detail assemblies fitted together for performing a certain function of a finished product.

- Products generally refer to motorcycles or their engines.

- Investment in the manufacture of motorcycle details, detail assemblies and/or parts means that enterprises invest their own capital or enter into joint ventures on a contractual basis involving capital contribution, profit sharing with other enterprises (domestic or foreign-invested) for manufacture.

Where an enterprise enters into a joint venture with another one, it must ensure the two following conditions:

- Contributing at least 30% of the legal capital, for joint ventures in the form of newly-established enterprise, or at least 30% of the contract-performing capital, for joint ventures on a contractual basis;

- The quantity of products turned out from joint-venture activities must be enough for the quantity of motorcycles made or assembled by the enterprise.

III. CONDITIONS FOR APPLICATION OF THE TAX PREFERENCE POLICY

In order to enjoy the tax preference policy, enterprises manufacturing and/or assembling motorcycles and their engines must meet all the following conditions:

1. The enterprises must invest in manufacturing motorcycle details, detail assemblies and/or parts so as to attain in 2002 the minimum localization rate of 20%, which is calculated for the whole product at the localization rates specified in Appendices 2,3,4 and 5 issued together with this Circular. Details, detail assemblies and parts on the lists of common domestically-made motorcycle details, detail assemblies and parts, which are issued together with this Circular, shall not be used for calculation of the above-said minimum localization rate.

This condition shall not apply to enterprises manufacturing and/or assembling engines.

Details, detail assemblies and parts manufactured by enterprises must meet the standards and qualities set by the Ministry of Science, Technology and Environment, and be labeled according to the regulations of the Ministry of Industry.

2. Making registration for implementation of the tax preference policy.

3. Paying VAT by deduction method.

4. Having a written certification of the Ministry of Science, Technology and Environment concerning industrial design, copyright, and trade-mark of each specific product registered for implementation of the tax preference policy.

5. Directly importing details, detail assemblies and parts for manufacture and/or assembly of products at the registered sites.

Where an enterprise registering for implementation of the tax preference policy authorizes or entrusts the import to another enterprise, it shall not be entitled to the tax preference policy.

6. Making payment of the value of imported goods lots entirely via bank.

IV. DETERMINATION OF THE LOCALIZATION RATE

1. The localization rate of each type of motorcycles or engines shall be determined according to the rate (%) of each type of detail, detail assembly or part compared with all loose details of the product, as specified in Appendices 2,3,4,5 and 6 to this Circular.

2. For motorcycle details, detail assemblies and parts (excluding engines)… purchased from other units, which are domestically manufactured, the localization rates shall be equal to 40% of the localization rates of such details, detail assemblies and parts prescribed in Appendices 2,3,4 and 5.

The localization rate of the detail, detail assembly or part purchased from a domestic manufacturing enterprise = The prescribed localization rate multiplies (x) coefficient H (40%).

For example: in 2002 enterprise A invests its own capital in manufacturing motorcycle parts not on the list of domestically-made motorcycle parts and achieves the localization rate of 20% (therefore, the enterprise is eligible for implementation of the localization rate-based tax preference policy). The enterprise purchased the rear shock absorbers which are manufactured domestically by another enterprise; the localization rate prescribed for rear shock absorbers is 1.8%. The enterprise shall have the localization rate of rear shock absorbers calculated as follows: 1.8% x 40% (coefficient H) = 0.72%

3. Motorcycle engines manufactured by the enterprises themselves or purchased from other manufacturing enterprises shall have their localization rate converted according to the following formula:

The achieved localization rate of engines prescribed in Appendix 6 multiplies (x) the localization rate prescribed for engines of motorcycles of each type, which is issued in Appendix 2,3,4 or 5.

For example: Enterprise A manufactures and assemblies motorcycle (women s type, 110^cc); Enterprise B manufactures engines. Enterprise B has registered for implementation of the import tax policy based on the localization rate of engines and achieved the localization rate of engines of 45%. Enterprise A purchases domestically-manufactured and assembled engines of Enterprise B. The localization rate of the domestically-purchased engines shall be determined for enterprise A as follows: 45% x 34 % (34% is the localization rate prescribed for engines of women s motorcycles-110^cc) = 15.3%.

4. For cases where an enterprise manufactures by itself a number of details in the detail assemblies, the localization rates of which are prescribed in Appendix 2,3,4,5 or 6, issued together with this Circular, it may declare by itself the localization rates of such details but must ensure the rate compatibility of the value of the manufactured details with the value of the detail assemblies and that the localization rates of the details must not exceed the localization rates prescribed for such detail assemblies.

For example: According to the Appendix, the localization rate prescribed for rear shock absorbers is 1.8%. But the enterprise can manufacture springs by itself. The value of such a spring accounts for 20% of the value of the shock absorber. In this case, the enterprise may declare the localization rate of the rear shock absorber s spring manufactured by itself as follows: 1.8% x 20% = 0.36%. Where the enterprise can manufacture the whole rear shock absorber, it shall apply the localization rate of 1.8%.

5. For motorcycles of special design, if the percentage of each detail, detail assembly or part… is not consistent with the percentages prescribed for different types of motorcycles in Appendix 2,3,4 or 5, the enterprises must effect the calculation of localization rates as prescribed, and at the same time, supply dossiers and documents to the Ministry of Finance for consideration and additional issuance of the percentage of each detail or part of motorcycles of the new type after consulting with the Ministry of Industry and the General Department of Customs.

6. For accessories having discrepancies as compared with the appendices, they shall have the localization rates of accessories with corresponding functions.

7. Enterprises importing details and parts on the list of common motorcycle details, detail assemblies and parts, which can be manufactured domestically shall not enjoy the localization rate-based import tax rates but be subject to the application of the import tax rates prescribed in the current import tax tariff.

8. Details, detail assemblies and parts of products, which are domestically manufactured, must ensure the standards and qualities prescribed by the Ministry of Science, Technology and Environment, and labeled according to the regulations of the Ministry of Industry.

9. The localization rates for the subsequent year shall be temporarily the ones actually achieved at the end of the preceding year. At the year-end, the localization rates actually achieved in each period of the year shall be used for determining the payable import tax. Where in the year the enterprise makes investment in raising the actual localization rates, resulting in a change in the applicable import tax rate, it may fill in the procedures for re-registering the implementation of the tax preference policy. The consideration and permission of the application of the tax preference policy shall be made twice in June and December each year.

V. IMPORT TAX RATES ACCORDING TO THE LOCALIZATION RATE

1. The import tax rates for details, detail assemblies and parts for manufacture and assembly of engines shall comply with the Finance Minister s Decision No. 1944/1988/QD-BTC of December 25, 1998.

2. The import tax rates for details, detail assemblies and parts for manufacture and assembly of motorcycles shall comply with the Finance Minister s Decision No. 116/2001/QD-BTC of November 20, 2001.

VI. INCENTIVE COEFFICIENT

If the enterprises directly investing in manufacturing motorcycle engines (consisting of engines, carburetors, gear boxes and electricity generation sets prescribed at Point 1.1, Appendices 2, 3, 4 and 5, issued together with this Circular) register for implementation of the tax preference policy, the import tax rates of motorcycle engines details, detail assemblies and parts imported by these enterprises shall be reduced as follows:

Tk = Ts x (1-k)

In which:

- Tk is the incentive import tax rate.

- Ts is the import tax rate based on the achieved localization rate.

- k is the incentive coefficient (k ’ 0.5, i.e. the tax reduction level shall not exceed 50% of the payable tax).

Coefficient k is specified as follows:

- Engines with the localization rate of between 20% and 30%, coefficient k of 0.2 shall apply.

- Engines with the localization rate of between over 30% and 40%, coefficient k of 0.3 shall apply.

- Engines with the localization rate of between over 40% and 50%, coefficient k of 0.4 shall apply.

- Engines with the localization rate of over 50%, coefficient k of 0.5 shall apply.

Incentive coefficient (k) for engines shall apply for two years as from the year this Circular takes effect (2002 and 2003). From 2004 on, it shall decrease gradually by 0.1 each year (according to the calendar year).

VII. ORGANIZATION OF IMPLEMENTATION

1. Procedures and dossiers for registration of implementation of the tax preference policy

In order to enjoy the tax preference policy, enterprises manufacturing and/or assembling motorcycles must submit to the Ministry of Finance four sets of dossier for registration of implementation of the tax preference policy according to the localization rate for each type of motorcycles or engines according to the following regulations:

1.1. The written declaration and the written registration of implementation of the tax preference policy for each specific mark of motorcycles, as guided in Appendix 1 issued together with this Circular (not printed herein)

Enterprises manufacturing and/or assembling motorcycles and engines shall base themselves on the percentage of each detail, detail assembly and part… of motorcycles or engines of different types prescribed in Appendices 2,3,4,5 and 6 and the guidance in Sections IV and VI of this Circular to make declaration and registration.

1.2. The copy (stamped for certification as true copy by the enterprise) of the written tax payment registration with the certification of the tax office where the enterprise has registered the tax payment.

1.3. The copy of the enterprise s financial statement of the quarter preceding the time of registration of implementation of the tax preference policy.

After 15 days as from the date of receiving the complete dossiers, the Ministry of Finance shall, after consulting with the inter-branch working team, issue a written notice on the enterprises eligibility or ineligibility for implementation of the tax preference policy and on the import tax rates to be temporarily applicable in the year, and affix stamps on the four dossier sets to certify that the dossiers have been registered, then return one set to the enterprise for import procedure clearance, and send the stamped dossier sets and copies of its notice to:

- The Customs Department of the province or city where the enterprise is headquartered or the nearest Customs Department for registration of implementation of the tax preference policy.

- The tax office of the locality where the enterprise has registered its tax payment, so that the tax office can effect the tax settlement for the enterprise.

On the basis of the localization rates notified by the Ministry of Finance, the import tax rates based on the localization rates prescribed for the products being motorcycles and/or engines, the customs offices shall inspect the tax calculation by the enterprises and collect import taxes. Within 30 (thirty) days after completing the customs procedures, the enterprises shall have to transfer the dossiers of the import goods lots (stamped for certification by the customs offices which have processed the import procedures) to the customs offices where the enterprises have registered for implementation of the tax preference policy, for the monitoring of final settlement later. Where the customs office detects that the enterprise imported goods rather than those already declared by the enterprise or the importing enterprise fails to meet the conditions specified in Section III of this Circular, it shall refuse to apply the localization rate-based import tax rate and shall collect the import tax as prescribed in the current import tax tariff.

The enterprises shall have to declare fully the quantity of each imported detail, detail assembly or part, calculate tax thereon and open import goods-monitoring books according to the regulation of the customs offices. The General Department of Customs shall guide the local customs offices how to monitor import goods in order to ensure both convenience for the enterprises and strict management, preventing import tax evasion.

Where an enterprise imports details and parts of products many times, but only a number of kinds each time, it must make registration and final settlement with the customs office which processes the import procedures. Within 90 (ninety) days as from the date of importation of the first goods lot, the enterprise must make final settlement with the customs office which processes the import procedures and transfer the dossier set to the customs office where it has registered for implementation of the tax preference policy. If, within the prescribed time limit, the enterprise fails to make the final settlement or does make the final settlement but the import goods are incompatible with the written registration, the customs office at the place where the goods are imported shall refuse to calculate and collect import tax according to the localization rate for subsequent import goods lots. Instead, it shall effect the retrospective collection of import tax at the rate prescribed in the import tax tariff for imported goods lots for which the final settlement has not yet been made.

2. Final settlement of the payment of the import tax according to the localization rate

2.1. Within 60 (sixty) days after the end of the fiscal year, the enterprises must sum up and make a report on the situation of the implementation of the tax preference policy under the guidance in Appendix 7 issued together with this Circular (not printed herein), then send it to the tax offices of the localities where they are headquartered, the Ministry of Industry and the customs offices where the enterprises have registered for implementation of the tax preference policy, together with the import goods-monitoring book.

2.2. On the basis of the reports and the import goods-monitoring books of the enterprises, the tax offices of the localities where the enterprises are headquartered shall assume the prime responsibility and coordinate with the customs offices where the enterprises have registered for implementation of the tax preference policy in inspecting the actual localization situation of the enterprises regarding the following specific contents:

- The situation of the enterprise s self-investment or joint ventures in manufacturing motorcycle accessories (Condition 1, Section III): self-invested capital, manufactured products; joint venture capital, joint venture results (in kind and value).

- The quantities of motorcycles of each motorcycle mark actually manufactured and/or assembled by the enterprise, compared with the quantities registered for implementation.

- The list of quantities and percentages of accessories… of each specific type (mark) of motorcycles, which the enterprise has actually imported as compared with the quantities and categories of imports recorded in the import goods-monitoring book according to the regulations of the General Department of Customs; vouchers on payment of import goods.

- The list of quantities (and percentages) of domestically-manufactured accessories of each type of motorcycles, which the enterprise has actually purchased and used for manufacture and assembly of motorcycles; the manufacturing units names, addresses, tax codes, serial numbers of the purchase and sale contracts and sale invoices (VAT invoices), records on the warehousing and ex-warehousing of products and domestically-purchased accessories. Where there is a doubt of false supplying sources, written requests should be sent to the concerned local tax offices to verify or certify such.

For details and detail assemblies…manufactured by the enterprises themselves, it is necessary to examine and determine precisely the quantities of accessories manufactured by the enterprises themselves for motorcycle assembly. To examine the manufactured quantity of each accessory; norms of raw materials and materials the unit has used for manufacturing accessories; materials and raw materials-supplying sources.

- Determining the achieved localization rate for each type (mark) of motorcycles, the import tax rate applicable to the enterprise corresponding to the localization rate achieved by the enterprise; determining the import tax amount overpaid or underpaid; effecting the collection of the outstanding import tax amounts or requesting the customs offices to deduct the overpaid tax amounts for the goods lots imported in the subsequent period.

- After examining the tax settlement according to the enterprise s localization rate, the tax office shall make a report on the examination and send it to the Ministry of Finance, the Ministry of Industry and the General Department of Customs.

3. Responsibilities of the State management bodies for the management, supervision and monitoring of the implementation of the tax preference policy for the manufacture of motorcycles.

3.1. The Ministry of Industry:

Based on the domestic enterprises technological capability and capacity, investment in machinery and equipment for manufacturing motorcycle accessories, joint venture and association capability, to inspect the manufacture of domestically-made motorcycle accessories in terms of quantity, standards and quality, label inscription against the figures declared by the enterprises themselves in order to ensure the application of tax preferences in this Circular to the right subjects.

The label inscription for domestically-made motorcycles and accessories shall comply with the guidance in Circular No. 05/2001/TT-BCN of June 18, 2001 of the Ministry of Industry guiding the label inscription for motorcycles and their accessories.

When receiving the final settlement reports of the enterprises, to examine and compare the domestically-made accessories… the enterprises have purchased, the label inscription for domestically-made accessories…motorcycles, to detect cases where the supplying sources are falsely declared or the supplied quantity are incompatible with the production capacity and technologies as well as cases of non-observance of the regulations on goods label inscription.

3.2. The General Department of Customs:

To guide the local customs offices to strictly monitor and supervise the imported goods. To detect in time the imported goods incompatible with the written registrations or having unclear origins. To severely handle cases of violation, ensure convenience for enterprises but also the strict management in order to prevent import tax evasion.

To direct the customs offices to coordinate with the tax offices in conducting import tax settlement according to the tax preference policy.

3.3. The Ministry of Finance:

To formulate the working regulations of the inter-branch working team in order to advise the Minister of Finance on the decision to permit enterprises to implement the tax preference policy for the manufacture of motorcycles.

To direct the provincial/municipal Finance Service and Tax Departments to inspect and monitor the purchase and sale of motorcycle details and accessories, the fulfillment of related tax obligations. To direct the local Tax Departments to coordinate with the customs offices in organizing the final settlement of import tax in line with the tax preference policy for enterprises enjoying the tax preference policy.

VIII. HANDLING OF VIOLATIONS

Cases of violation of the guidance in this Circular include:

- Having registered for self-manufacture or purchase of details and accessories manufactured by domestic units but purchasing import goods.

- Organizing the assembly of motorcycles outside the registered assembly sites.

- Fraudulently declaring and settling import tax based on the localization rate…

The violating enterprises shall have to pay retrospectively the difference between the tax amount calculated at the rate prescribed in the current import tax tariff and the tax amount calculated at the rate based on the localization rate and be sanctioned according to the provisions of the import tax and export tax legislation, and at the same time, banned from implementing the localization rate-based import tax policy.

This Circular takes implementation effect as from January 1, 2002 and replaces the localization rate-based import tax policy for motorcycles and their engines as guided in Joint Circulars No. 176/1998/TTLT-BTC-BCN-TCHQ of December 25, 1998 and No.120/2000/TTLT-BTC-BCN-TCHQ of December 25, 2000 of the Ministry of Finance, the Ministry of Industry and the General Department of Customs. Any problems arising in the course of implementation should be reported by organizations and individuals to the ministries for settlement.

(This translation is for reference only)