Is it correct to pay VAT if the commune budget works with capital from higher levels, such as additional funds from the central province or district?

The Ministry of Finance responded to this issue as follows:

Pursuant to Point b, Clause 5, Article 13 of Circular No. 80/2021/TT-BTC dated September 29, 2021 of the Ministry of Finance guiding the implementation of a number of articles of the Law on Tax Administration and Decree No. 126/2020/ Decree-CP dated October 19, 2020 of the Government detailing the implementation of a number of articles of the Law on Tax Administration, providing for tax declaration, tax calculation, distribution and payment of VAT:

"5. The State Treasury shall deduct VAT from contractors when carrying out procedures for payment of state budget capital construction investment capital to investors as follows:

a) The State Treasury where the investor opens a transaction account shall deduct VAT to pay into the state budget at the rate of 1% of excluding VAT on the completed volume of works, basic construction work items, except for the cases specified at Point b of this Clause.

b) The State Treasury shall not deduct VAT in the following cases:

b.1) The investor shall carry out procedures for advance capital construction investment according to regulations.

b.2) Payments for capital construction investment for project management activities: payments for project management tasks directly performed by investors; expenditures of the project management board, expenses for site clearance, and expenditures for self-made projects.

b.3) Construction investment expenses of projects and works under the commune budget with a total investment of less than VND 1 billion.

b.4) Cases where taxpayers prove that they have fully paid taxes into the state budget".

Thus, the construction investment expenses of projects and works under the commune budget with a total investment of less than 1 billion VND are not subject to VAT deduction.

Determining capital sources from the commune budget he worked with the State Treasury for specific guidance.