Decree No. 27/1999/ND-CP dated April 20, 1999 of the Government amending and supplementing the regulation on financial management and business cost-accounting at state enterprises, issued together with the Government’s Decree No.59/CP dated October 3, 1996
SOCIALIST REPUBLIC OF VIET NAM
Independence - Freedom – Happiness
Hanoi, April 20, 1999
AMENDING AND SUPPLEMENTING THE REGULATION ON FINANCIAL MANAGEMENT AND BUSINESS COST-ACCOUNTING AT STATE ENTERPRISES, ISSUED TOGETHER WITH THE GOVERNMENT’S DECREE No.59/CP OF OCTOBER 3, 1996
Pursuant to the Law on Organization of the Government of September 30, 1992;
Pursuant to the Law on State Enterprises of April 20, 1995;
At the proposal of the Minister of Finance,
Article 1.- To amend and supplement a number of Articles or Clauses of the "Regulation on Financial Management and Business Cost-Accounting at State Enterprises", issued together with Decree No.59/CP of October 3, 1996 as follows:
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1. Article 4 is amended as follows:
"Article 4.- During the business course, when necessary, the State may consider and allocate additional investment capital to an enterprise.
The enterprise shall have to make public its charter capital and any change thereof.
In addition to its charter capital, the enterprise shall have to mobilize by itself more capital for the development of its business and take self-responsibility for such capital mobilization. The enterprise is obliged to receive, manage and efficiently use the capital and resources assigned by the State, constantly raise its business efficiency, preserve and develop the capital. The enterprise shall take limited civil liability for its business activities before law within the amount of its capital, including the State allocated capital."
2. To amend and supplement Clauses 1 and 2 of Article 7 as follows:
"1. Enterprises shall be allocated by the State with capital under the State ownership and available at such enterprises, including the State budget allocated capital, capital originating from the State budget and the capital accumulated by enterprises themselves (if any).
2. With regard to independent enterprises that admit newly merged enterprise(s) or are re-established on the basis of consolidation with or separation from other enterprise(s), before they are allocated capital, all their remaining financial problems, the causes thereof and the relevant persons’ responsibilities must be clearly determined for handling in accordance with the current regulations. For financial problems brought about by the implementation of the State policies, the enterprises shall request the competent State agency to handle them. The re-established enterprises and enterprises admitting newly merged enterprises may inherit all interests and perform all obligations of the pre-merged, -consolidated or -split State enterprises."
3. Article 11 is amended as follows:
"Article 11.- Apart from the State-invested capital, a State enterprise shall be entitled to mobilize capital in various forms: issuing bonds and/or shares, borrowing capital, receiving capital contributions, and other forms. The capital mobilization must comply with the provisions of law, and must not alter the form of ownership of the enterprise. Where bonds and/or shares are issued for capital mobilization, the current provisions of law must be abided by."
4. Article 13 is amended as follows:
"Article 13.- A State enterprise shall have to preserve the State-allocated capital in accordance with the following regulations:
1. Strictly complying with the State regime on the management and use of capital and property;
2. Buying property insurance as prescribed;
3. Being allowed to account the following risk reserves into the business expenditure or expenditure for other activities:
a/ The reserve for unsold goods price cut meaning the amount of unsold goods and/or supplies price reduction that may occur in the subsequent business cycle;
b/ The reserve for bad debts: meaning the debts projected as unrecoverable in the subsequent business cycle because the debtors are unable to repay;
c/ The reserve for the securities devaluation in financial activities;
d/ The reserve for the devaluation of Vietnamese currency against foreign currencies.
The Ministry of Finance shall guide the setting up and use of the reserves mentioned in Clause 3, Article 13 of this Regulation".
5. Article 14 is amended as follows:
1. A State enterprise shall re-appraise its assets in the following cases:
a/ Inventorying and re-appraising its assets by decision of a competent State agency;
b/ Conducting equitization, diversifying its ownership form or transferring its ownership;
c/ Using its assets to enter into joint venture or contribute shares (when the assets are contributed as capital or returned).
2. The inventory and re-appraisal of assets must comply with the State’s regulations. Any increase or decrease in the value of the enterprise’s assets as a result of the re-appraisal shall be accounted for State capital increase or decrease at the enterprise".
6. Article 15 is amended as follows:
"Article 15.- When damage is caused to its assets, an enterprise shall have to determine the value of the damage, the causes thereof as well as the responsibility therefor and handle it as follows:
1. If the damage is caused due to subjective reasons by the collective or individual(s), the damage causer shall have to compensate for it as prescribed by law. The enterprise�s Managing Board or director (for enterprises without managing boards) shall decide the compensation level and take responsibility for its/his/her decision.
2. If the damage is caused to the already insured property, it shall be dealt with according to the insurance contract.
3. If the damage value remains insufficient even after the compensation by individual(s), collective or insurance organization, it shall be made up for by the enterprise’s financial reserve fund. Where the financial reserve fund is not enough therefor, the deficit it shall be accounted into the irregular expenditure in the period.
4. Where serious losses are caused to the enterprise due to natural calamities or objective causes, which the enterprise cannot overcome by itself, the Managing Board or the director (for enterprises without managing boards) shall draw up a plan to deal with the losses and submit it to the financial agency. After consulting the agency that has decided the establishment of the enterprise, the financial agency shall decide the handling of the losses or report it to the Prime Minister for decision."
7. To amend Clause 3, Article 17 as follows:
"3. When an enterprise leases, mortgages or pledges assets which constitute its entire main technological line as specified by the economic-technical specialized management agency, a written consent from the agency that has decided the establishment of such enterprise is required."
8. To amend Clause 1, Article 18 as follows:
"1. An enterprise shall be entitled to take the initiative in selling its assets to retrieve capital and use it for more effective business purposes. The sale of assets constituting its entire main technological line as specified by the economic-technical specialized management agency, must be agreed upon in writing by the agency that has decided its establishment."
9. To amend Clause 1, Article 19 as follows:
"1. An enterprise shall be entitled to liquidate assets of poor or deteriorating quality, and assets which are irreparably damaged, technically obsolete, unusable or inefficiently used, which cannot be sold in their status quo. With regard to assets constituting the entire main technological line of the enterprise as specified by the economic-technical specialized management agency, the liquidation thereof must be ratified by the agency that has decided the establishment of the enterprise."
10. To amend, supplement Point h (Clause 1) and Clause 2 of Article 23 as follows:
"h/ Other expenditures:
- Deductions for the establishment of the reserves as prescribed at Points a and b, Clause 3, Article 13 of this Regulation;
- Severance allowance for laborers as prescribed by the Government’s Decree No.198/CP of December 31, 1994 detailing and guiding the implementation of a number of Articles of the Labor Code on labor contracts, and other legal documents of the Government;
- The mid-shift meal expenses for laborers, rewards for innovations and thrifty use of supplies under the guidances of the Ministry of Labor, War Invalids and Social Affairs, the Ministry of Science, Technology and Environment and the Ministry of Finance;
- Expenses for scientific research, technological renovation studies, innovation and modification; training of laborers, raising their professional or managerial skills; educational support (if any) and health care for the enterprise’s laborers as prescribed by law;
- Expenses for environmental protection work. If the spending amount is large and useful for many years, it shall be split up for subsequent years;
- Expenses for female laborers as prescribed by law;
- Expenses for product warranty. For products with long production time or which require the warranty for many years, such as construction or shipbuilding projects, the enterprise shall be entitled to make advance deductions from the annual expenditure;
- Expenses for fines due to the violation(s) of economic contract(s);
- Advance deductions already agreed upon in writing by the financial agency."
"2. Expenses for other activities of the enterprise shall include:
- Expenses for the trading in bonds and/or shares; expenses for the reserve for the devaluation of securities; asset hiring expenses; expenses for asset sale and liquidation (including the remaining value of assets and the sale and liquidation expenses); expenses for activities related to joint venture, cooperation and stock contribution; expenses for the retrieval of the forgiven debts; expenses for fine collection; asset losses remaining after being made up for by sources prescribed in Clause 3, Article 5 of this Decree;
- Expenses and reserve for foreign exchange rate difference as prescribed by the current financial regime;
- Other expenses".
11. Article 24 is amended as follows:
"Article 24.- An enterprise shall not be allowed to account into its business operational costs and the costs of other activities the following:
1. Fines for violations of the provisions of law. The collectives and/or individuals breaching law shall have to pay these fines according to regulations;
2. Expenses that are not related to business activities of the enterprise such as difficulty allowances for laborers of the enterprise, expenses in support of localities, mass organizations or agencies, etc;
3. Expenses for overseas mission-trips, which exceed the prescribed level;
4. Expenses covered by other funding sources".
12. Article 25 is amended as follows:
"Article 25.- Determination of the production cost of products and services:
1. The production cost of products and services shall include:
a/ Cost of direct materials meaning the cost of raw materials, fuel and materials directly used for the creation of products and services;
b/ Cost of direct labor, including salaries, wages and deductions for the payment of social and medical insurance for workers who directly create products and services as stipulated by the State;
c/ General production cost meaning the expenses for production and/or processing activities of workshops (or business units) that directly create products and services such as the cost of materials, small working tools, depreciation of fixed assets of the workshops (business units); salaries and prescribed deductions for social and medical insurance for personnel of the workshops (business units), cost of services procured from outside, and other pecuniary costs arising in the workshops (business units).
2. The total cost of products and services already consumed shall include:
a/ Production cost of products and services already consumed;
b/ Sale cost i.e. all expenses related to the sale of products and services, including the expenses for product warranty;
c/ The enterprise’s managerial cost meaning the expenses for the enterprise’s executive and managerial apparatus, the expenses related to the business operations of the enterprise such as the cost of small working tools, depreciation of fixed assets in service of the enterprise’s executive and managerial apparatus: salaries and prescribed deductions for the corporation management fund; the cost of services procured from outside; and other pecuniary expenses such as expenses for reception and public and external relation activities, severance allowances for laborers as prescribed by Decree No.198/CP of December 31, 1994 of the Government detailing and guiding the implementation of a number of Articles of the Labor Code; the reserves for unsaleable goods price cut and for bad debts as prescribed in Points a and b, Clause 3, Article 13 of this Regulation; expenses for scientific research, technological renovation studies, innovations, training and education and health care for the laborers of the enterprise, environmental protection expenses and expenses for female laborers as prescribed."
13. Article 28 is amended as follows:
1. An enterprise shall be entitled to spend on advertisement, marketing and sale promotion for its business activities as well as on transactions, reception, external relations and meetings. The enterprise shall have to elaborate a regulation for the management and publicization of the above-said expenses. The enterprise’s director shall decide such expenses and be answerable to the State for his/her decision. These expenses must not exceed 7% of the total actual expenditure in the period. The Ministry of Finance shall provide detailed guidance for a number of specific business lines;
2. The labor safety expenses must be based on the regime and norms according to the current regulations;
3. The member enterprises of a corporation shall make deductions for the corporation management fund according to the general director’s decision and on the basis of the plan already ratified by the corporation’s Managing Board and reflected in its annual financial plan. If the corporation does not use up its mobilized management fund, it can carry forward the left-over to the subsequent year for spending and reducing the mobilization level in the subsequent year. If the mobilized fund amount is smaller than the actual spending, the corporation shall be entitled to mobilize more fund in the subsequent year. The Managing Board shall approve this additional mobilization level".
14. Article 32 is amended as follows:
"Article 32.- The actual profit gained in a year by an enterprise after it has paid the enterprise income tax, shall be distributed as follows:
1. To offset the losses of the preceding years, which cannot be accounted into the pre-tax profit;
2. To pay a fee for the use of the State-budget capital;
3. To pay fines for violations of law that come under the enterprises responsibility;
4. The profit remaining after the amounts defined in Clauses 1, 2 and 3 of this Article have been deducted shall be distributed according to the following regulations:
a/ 10%- for the financial reserve fund; when the fund balance is equal to 25% of the charter capital of the enterprise, the deduction shall be no longer required;
b/ 50%- for the development investment fund;
c/ 5%- for the severance allowance reserve fund; when the fund balance is equal to the actual 6-month salary amount, the deduction shall be no longer required;
d/ For a number of specific branches where the establishment of special funds with the after-tax profit is allowed by law, the enterprise shall be entitled to establish such funds according to such law provisions;
e/ For stock dividends in case of issuing shares;
f/ The profit amount left after the deductions prescribed in Clauses a, b, c, d and e have been made shall be used for the establishment of two funds: the welfare fund and the reward fund. The maximum deduction level for both funds shall be as follows, based on the profit proportion (against the State capital):
- The actual 3-month salary amount, if the profit proportion of the current year is not lower than that of the preceding year. In cases where the enterprise invests in technological renovation or business expansion during the period of enterprise income tax exemption under the Law on Domestic Investment Promotion, if its profit proportion is lower than that of the pre-investment year, it shall also be entitled to make a deduction equal to the actual 3-month salary amount at most.
- The actual 2-month salary amount if the profit proportion of the current year is lower than that of the preceding year.
The enterprise�s Managing Board or the director (for enterprises without managing boards) shall, after consulting the trade union, decide the deduction level applicable to each fund.
The profit amount left after deductions have been made for the establishment of the reward fund and the welfare fund as mentioned above shall be fully added to the development investment fund".
15. To amend, supplement Clause 1 of Article 33 as follows:
"1. The development investment fund: shall be used to supplement business capital of the enterprise; and make deductions for the establishment of the Corporation’s development investment fund according to the rate decided by the Corporation’s Managing Board.
In case of necessity, the State shall have the right to mobilize part of the enterprise’s development investment fund for development investment in other State enterprises."
16. To add Article 40 (new) and convert Article 40 (old) into Article 41.
1. The financial management-reward and discipline regime for managing boards, general directors and directors of State enterprises:
a/ If for 3 consecutive years an enterprise fulfills its tax payment obligation as prescribed by law, gains profit or reduces losses and has its profit proportion calculated on the State capital of the subsequent year higher than that of the preceding year, preserves and develops the State assigned capital, the members of the Managing Board, the general director and director of the enterprise shall enjoy the higher reward level and be considered for having their wages raised ahead of time.
b/ If an enterprise suffers from business losses, the general director or director shall report the situation to the Managing Board (for enterprises with managing boards). The Managing Board (for enterprises with managing boards) or the general director, director (for enterprises without managing boards) shall further report it to the Finance Ministry and the agency that has decided the establishment of the enterprise on the amount of losses, its causes as well as the responsibilities of the Managing Board, the general director and director therefor, and work out plan to overcome it.
Depending on the loss amount, the number of years suffering from losses, the losses’ subjective causes and the concrete responsibilities therefor, the chairman and members of the Managing Board, the general director and director of the enterprise shall be disciplined in one of the following forms: reduction or cut of reward money, not having their wages raised (is the time is due), having their wages reduced, reprimand, warning or dismissal from the current posts.
c/ Where the implementation of an investment project fails to bring about economic efficiency, leading to the incapability of recovering the State capital or repaying debts according to the loan contract or capital-borrowing contract, for losses caused by subjective reasons, depending on the nature and seriousness of the violations and within their responsibilities specified in Article 38 and Article 39 of this Regulation, the Managing Board, the general director and director of the enterprise shall be administratively handled and have to pay material compensation as prescribed by law. Those members of the Managing Board who reserve opinions other than the ratified project shall not be subject to the above-mentioned forms of discipline.
d/ If failing to observe the financial reporting regime; publicizing untruthful financial reports; failing to observe or violating this Regulation, the Managing Board, the general director and director of the enterprise shall, within the ambit of their responsibilities specified in Articles 38 and 39 of this Regulation and depending on the nature and seriousness of their violations, be administratively handled; and if causing material losses, they shall have to pay compensation therefor in accordance with the provisions of law.
Where the above-said violations contain signs of crimes, the violators shall be examined for penal liability.
e/ The person(s) who has(have) decided the appointment of the chairman and other members of the Managing Board, the general director and director of the enterprise shall be the person(s) to decide the reward and sanction.
2. State management agencies with functions, tasks and powers prescribed by law for the management of State enterprises, if making wrong decision, delaying the handling of work or abusing their powers, thus causing losses to State enterprises, shall have to clearly define responsibilities of individuals and/or collectives who, depending on the seriousness of the violations, shall be disciplined; if there are signs of crimes, they shall be examined for penal liability as prescribed by law".
Article 2.- This Decree takes effect 15 days after its signing. The earlier stipulations of the Government, ministries, ministerial-level agencies and agencies attached to the Government, which are contrary to the contents of this Regulation are all now annulled.
Article 3.- The Minister of Finance shall have to guide and inspect the implementation of this Decree.
The ministers, the heads of the ministerial-level agencies, the heads of the agencies attached to the Government, the presidents of the People’s Committee of the provinces and centrally-run cities, the managing boards, the general directors and directors of State enterprises engaged in business activities shall have to implement this Decree.