CIRCULAR No.68-TC/TCDN OF SEPTEMBER 25, 1997 GUIDING THE MANAGEMENT AND USE OF THE STATE'S FINANCIAL SUPPORT FOR STATE ENTERPRISES

In furtherance of Decree No.59-CP of October 3, 1996 of the Government issuing the Regulation on financial management and business cost-accounting of State enterprises, and Decree No.56-CP of October 2, 1996 of the Government on State public utility enterprises; the Ministry of Finance hereby provides the following guidance for the management and use of the State's financial support for State enterprises:

I. GENERAL PROVISIONS

1. Objects of application: The provisions of this Circular shall apply to State enterprises defined in Article 2 of Decree No.56-CP of October 2, 1996 of the Government on State public utility enterprises and Article 1 of Decree No.59-CP of October 3, 1996 of the Government issuing the Regulation on financial management and business cost-accounting of State enterprises, which are hereafter commonly referred to as State enterprises.

2. The financial support from the State budget for State enterprises shall be provided in the forms of subsidies, price subsidies, loan interest support, investment support, capital support for paying due debts owed by enterprises which have borrowed investment capital and developed their businesses fruitfully, but met with financial difficulties during their first years of operation.

a) Subsidies are the financial support from the State budget for enterprises to produce goods or provide services under the State's order or policies, when the turnover cannot cover the costs.

b) Price subsidies are the financial support from the State budget at fixed levels calculated on each unit of product, goods or service for State enterprises to produce goods or provide services that have already been sold on the basis of tasks assigned by the State, under the State's orders or policies.

c) Loan interest support is the financial support from the State budget to partly or fully make up for the interest on loans borrowed by enterprises from credit institutions for the production of goods or provision of services under the State's policies.

d) Investment support is the financial support from the State budget for enterprises to expand their operation or make intensive investment when the State deems it necessary.

e) Capital support for paying enterprises' debts is the financial support from the State budget to pay due debts owed by enterprises which have borrowed investment capital, efficiently developed their business, and contributed more and more to the State budget, but have met with financial difficulties.

3. Those State enterprises entitled to subsidies, price subsidies, loan interest support, investment support or capital support for due debt payment must use them for the right objects, the right purposes and efficiently.

4. The financial support shall be provided as follows:

a) For enterprises established by the Prime Minister, the ministries or branches at central level, which shall be given the support by decisions of the Prime Minister (or the competent agencies authorized by the Prime Minister), such support shall be provided from the central budget.

b) For enterprises established by presidents of the People's Committees of the provinces and cities directly under the Central Government (or established under the authorization of the Prime Minister) who have decided the support therefor, such support shall be allocated from local budgets (except for support for State enterprises from the central budget according to annual plans or support directly allocated to enterprises under decisions of the Prime Minister).

5. In cases of floods, natural calamities, sabotages, fires, pests, epidemics, etc. due to force majeure, enterprises shall be given support on a case-by-case basis and in accordance with current regulations.

II. SPECIFIC PROVISIONS

1. For enterprises entitled to financial subsidies:

1.1- Conditions for an enterprise to be considered for subsidies:

- Its products and/or services are on the subsidy list stipulated by the Prime Minister

- It must have a plan approved by the agency that has decided its establishment.

- It must fulfill the assigned tasks or production orders in terms of quantity, quality and deadline. In case of any changes in the quantity and structure of product items, a written consent from the agency that has decided its establishment is required and such changes must be included in the annual State budget plans.

- The subsidy level shall be determined by the competent agency.

- It must strictly observe the regulations on financial management and budget collection and remittance.

1.2- The allocation of financial subsidies:

Basing itself on the approved annual subsidy plans, the financial agency shall temporarily allocate to the enterprise 70% of planned subsidy depending on the plan execution tempo. Upon the completion of the work or at the end of a fiscal year, the State enterprise entitled to financial subsidy shall have to report the results of its performance of business tasks financially subsidized by the State, to the agency that has assigned plans or the production orders and the finance agency of the same level. The agency that has assigned plans or production orders and the finance agency shall have to inspect and evaluate the performance results in terms of quantity, quality and socio-economic efficiency of the products or services for which the enterprise has been entitled to financial subsidies:

- If the enterprise fails to ensure the quantity and quality of products, goods or services under the assigned plans or production orders, the finance agency shall, after consulting the agency that has assigned the plan or production orders, decide to recover the amount of subsidies which have been used inefficiently or not been used up so as remit them to the budget or convert them into subsidies for the next year.

- If the enterprise fulfills all the assigned norms on the quantity and quality, but the subsidies provided to it are still insufficient, the finance agency shall additionally allocate the deficit in the approved budget estimates.

In cases of price fluctuation and extraordinary tasks outside the assigned plan, the finance agency shall, together with the agency that has assigned plans or production orders, consider and settle case by case within the total subsidy amount already specified in the plans or the next year's budget estimate.

1.3- The management and accounting of financial subsidies:

- Financial plans: Annually, basing themselves on the regulations and guidance of the Ministry of Finance and their tasks of producing goods and providing services as assigned by the State, the enterprises shall draw up plans for financial revenues and expenditures including financial subsidy plans, then report them to the agency that has decided their establishment and the finance agency of the same level. The agency that has decided the establishment of the enterprises shall have to inspect and sum up such plans within the limits of the approved annual budget revenue and expenditure estimates then submit the sum-up to the competent agency for consideration and decision.

- Accounting of financial subsidies: Enterprises shall be entitled to account the subsidy funds into their subsidy or price subsidy turnover. Such subsidies shall not be subject to the turnover tax.

2- For enterprises entitled to financial price subsidies:

2.1- Conditions for a State enterprise to be considered for price subsidies:

- The list of products, goods or services eligible for price subsidies must be decided by the agency that has decided its establishment.

- The products, goods or services eligible for price subsidies must meet the quantity, quality, time and price requirements prescribed or agreed in production orders by the State. Any changes in quantity or goods item structure must be agreed upon in writing by the agency that has decided the enterprise's establishment.

- The level of price subsidy for each product or goods item shall be determined by the competent agency.

- The enterprise must strictly comply with the regulations on financial management and budget collection and remittance.

2.2- The allocation of price subsidies:

Basing itself on the approved annual plans for price subsidies for each product or service, the finance agency shall temporarily allocate to the enterprise 70% of the price subsidies according to the tempo of execution of plans for each product or service. Upon completion of the whole work or at the end of a fiscal year, the State enterprise benefiting from the price subsidies shall have to report the results of its business performance regarding the products or services eligible for price subsidies. The agency that has assigned the plan or production order and the finance agency shall have to inspect such performance results and the socio-economic efficiency of products or services subsidized by the State.

- If the enterprise fails to fulfill the assigned plan or production order in terms of quantity and quality of products or services, the finance agency shall, after consulting the agency that has assigned the plan or production order, decide to recover the amounts of subsidies which have been used inefficiently or have not been used up so as to remit them to the State budget or convert them into subsidies for the following year.

- If the enterprise fulfills all the assigned norms on the quantity and quality, but the subsidies allocated to it are insufficient, the finance agency shall additionally allocate the deficit in the approved plan or budget estimates.

In cases of price fluctuation or an extraordinary task outside the assigned plan, the finance agency shall, together with the agency that has assigned the plan, consider and settle case by case within the total amount of price subsidies stated in the plan or budget estimates for the following year.

2.3- The management and accounting of price subsidies:

- Financial plans: Annually, basing themselves on the regulations and guidance of the Ministry of Finance, and their tasks of producing goods and providing services eligible for price subsidies from the State, enterprises shall draw up financial revenue and expenditure plans including plans on price subsidies for products or services, then report them to the agency that has decided their establishment and the finance agency of the same level. The agency that has decided the enterprises' establishment shall have to examine, sum up and report them to the Prime Minister (or an authorized agency) for consideration and decision.

- Accounting of price subsidies: Enterprises shall be entitled to account price subsidies into their subsidized turnover. Such price subsidies shall not be subject to turnover tax.

The enterprise shall account such price subsidies separately for each product or goods item produced or service provided, which is eligible for price subsidies from the State.

3- For enterprises entitled to loan interest support:

3.1- The conditions for an enterprise to be entitled to loan interest support:

- Its products, goods or services must be decided by the Prime Minister or the agency authorized by the Prime Minister.

- It must ensure the quantity, quality, time schedule and price of its products or services as prescribed by the State. Any changes in the quantity or prices must be agreed upon by the agency that has decided the loan interest support.

- The loan interest support must be included in the annual budget plans approved by the competent level.

3.2- The allocation of loan interest support:

Quarterly, basing itself on the loan interest actually incurred to products, goods or services provided (with certification from the lending bank or credit institution), the finance agency shall allocate support for such loan interest. Upon the completion of the whole work or at the end of each fiscal year, State enterprises entitled to loan interest support shall have to report on the performance results regarding each product or service eligible for the loan interest support.

3.3- The management and accounting of loan interest support:

- Financial plans: Annually, basing themselves on the Government's regulations and the Ministry of Finance's guidance and their tasks of producing goods or providing services as assigned by the State, the enterprise entitled to loan interest support shall draw up financial revenue and expenditure plans, including plans for loan interest support, then report them to the agency that has decided their establishment and the finance agency of the same level. The agency that has decided the enterprise's establishment shall have to examine, sum up and report them to the Prime Minister (or an agency authorized by the Prime Minister) for decision.

Within the limits of the approved annual budget revenue and expenditure estimates, the Prime Minister (or the agency authorized by the Prime Minister) shall decide the level of loan interest support for each product, goods item or service of the enterprise or for each type of enterprise.

- The accounting of loan interest support: The enterprise shall be entitled to use loan interest support to make up for costs of production of goods or provision of services, which are eligible for such loan interest support.

The enterprises shall account such loan interest support separately for each product, goods item or service.

4- For enterprises entitled to investment support:

4.1- Conditions for a State enterprise to enjoy the investment support:

- It is a newly established enterprise and has not yet been allocated initial capital as stipulated.

- It is a public-utility enterprise being in operation but actually lacking in capital to perform the assigned tasks.

- It is an enterprise performing important tasks such as: infrastructure construction after it has won an international bidding therefor; purchase of farm products for export, production of materials or goods as import substitutes...but currently meeting with difficulties in capital.

- It is an enterprise conducting business activities with economic efficiency, high production growth rate or good sale of products, making profits and paying greater and greater tax amounts (including profit tax), but lacking in business capital.

- Investment support must be included in annual budget plans already approved by competent level.

4.2- The allocation of investment support:

4.2.1- The State budget shall provide investment support for the construction and purchase of fixed assets: According to investment plan already approved by the agency that has decided the enterprise's establishment; the enterprises entitled to investment support for the purchase of fixed assets shall comply with Decree No.42-CP of July 16, 1996 of the Government issuing the Regulation on Investment and Construction Management and Decree No.43-CP of July 16, 1996 of the Government issuing the Regulation on Construction Bidding.

4.2.2- The State budget shall provide business capital support for the purchase of working assets (working capital)

a) Basis for the consideration of investment support grant:

- The decision on the enterprise's establishment issued by the competent State agency.

- The business registration certificate.

- The financial report and financial statement of the enterprise for the year before the investment is made (for enterprise being in operation).

- The production and business plan already registered.

b) If the enterprise meets all conditions prescribed by the State for being entitled to the support, the finance agency shall, after consulting the agency that has decided the enterprise's establishment, decide the level of support. Such investment support shall be accounted into the State capital increase, the enterprise shall have to manage and preserve such capital in accordance with the current financial management regime.

5- Capital support for paying due debts owed by enterprises when they mobilize capital for investment, which have conducted business efficiently but met with financial difficulty in the first years of operation:

The conditions for an enterprise to be entitled to the support:

- It is a State enterprise which has assets formed by mobilized capital and has actually promoted their efficiency in production and sale of products, made profits and increased its remittances to the State budget as compared to the period before the investment capital is mobilized.

- It mobilizes investment capital in conformity with the plan approved by the competent level.

- After the enterprise has mobilized all its lawful capital sources, it is still unable to fully pay due debts.

- The support amount in the year is not higher than the budget remittance increase over the period before the enterprise's investment capital is mobilized.

- Such support must be specified in the annual State budget plan already approved.

The allocation and accounting of support:

Basing itself on the support limits specified in the State budget plan, on the demand for capital support for paying due debts as determined on the above said principles and the increase rate of the State budget remittances, the finance agency shall decide the support amounts to be allocated to enterprises.

Such support amounts shall be accounted by the enterprise into the State budget capital sources, the enterprises shall have to manage and preserve such capital in accordance with the current financial management regime.

III. THE SUPERVISION, INSPECTION AND HANDLING OF VIOLATIONS

1- The State enterprises enjoying the financial support shall have to observe the regime of financial reporting and financial statement as prescribed in Circular No.06-TC/TCDN of February 24, 1997 of the Ministry of Finance on the financial management regime applicable to public-utility enterprises and Circular No.73-TC/TCDN of November 12, 1996 of the Ministry of Finance providing guidance for making and publicizing financial reports and examining annual financial reports of State enterprises.

2- The State enterprises enjoying the financial support shall have to clearly explain the management and use of the financial support from the State; and at the same time regularly report on the situation and tempo of the performance of the tasks of producing goods or providing services that are eligible for financial support.

The directors of such enterprises shall be responsible to the State and law for the accuracy and authenticity of the financial reports.

3- The finance agency shall have to regularly or periodically supervise and inspect the management and use of the State's financial support for enterprises.

The enterprises entitled to financial support shall have to provide the functional agencies with all information, data and vouchers related to the State's support.

For all violations that cause economic damage and all spendings that are made at variance with the prescribed principles, purposes and financial regimes, the Managing Boards (for enterprises having managing boards), the General Directors or the Directors (for enterprises having no managing boards) shall, depending on the extent of damage caused by violations, administratively discipline the violators or force them to pay compensation or examine them for penal liability as prescribed by law.

VI. IMPLEMENTATION PROVISIONS

1. Basing themselves on the provisions of this Circular, the ministries, the ministerial-level agencies, the People's Committees of the provinces and cities directly under the Central Government and enterprises shall, depending on their assigned business or public utility tasks, provide support in appropriate forms. For cases other than those prescribed, written consents from the Ministry of Finance are required.

Besides the provisions of this Circular, enterprises must also comply with other regulations on financial management and relevant provisions of law.

2. This Circular takes effect from the date of its signing. The previous stipulations which are contrary to this Circular are now annulled. Any problem arising in the course of implementation shall be reported by the ministries, the People's Committees of the provinces and cities and the State enterprises to the Ministry of Finance for consideration and appropriate amendments and supplements.

For the Minister of Finance

Vice Minister

PHAM VAN TRONG