For VAT-registered businesses in Thailand, preparing and submitting accurate VAT reports within three business days is mandatory. Among these reports, inventory reports are legally required on a monthly or annual basis. During routine stock counts, it is common to find that actual inventory differs from the recorded inventory, resulting in either shortages or surpluses. These discrepancies must be properly adjusted, as they carry both accounting and tax implications.

1. Inventory Surplus

When a stock count identifies an inventory surplus, there is usually no immediate VAT liability or penalty. However, if a surplus is discovered during a Revenue Department inspection, the business may face a fine of THB 2,000 under Section 90(15) of the Revenue Code.

2. Inventory Shortage

If a stock count reveals an inventory shortage, businesses must take the following actions:

Value-Added Tax (VAT)

The value of missing inventory is treated as a sale under Section 77/1(จ) of the Revenue Code:

• Finished goods: The market price is used as the VAT base.

• Raw materials: The purchase cost is used as the VAT base.

Additionally, a penalty equal to twice the VAT amount is applied, based on the unreported taxable base under Section 89(10). Penalties may be reduced according to Revenue Department Notification Tor.Por. 81/2542:

• Case 1: Taxpayer has already reported and paid VAT for the taxable base corresponding to the missing inventory:

  • Violation within 2 years from registration: 10% of the penalty applies.

  • Violation after 2 years from registration: 20% of the penalty applies.

• Case 2: Taxpayer has not reported VAT for the missing inventory: 30% of the penalty applies, including situations discovered during Revenue Department inspections.

Corporate Income Tax (CIT)

• Unexplained inventory shortages: Treated as income for CIT purposes at the end of the accounting period and must be reported in Form Phor.Ngor.Dor. 50.

• Reasonable explanation with evidence: Shortages due to theft or unavoidable loss, where the company has no insurance or indemnity coverage, are not treated as income. The full cost of the missing inventory may be recognized as an expense when calculating net profit for CIT purposes.

Key Takeaways:

• Accurate inventory reporting is crucial to avoid penalties and additional tax liabilities.

• Both VAT and CIT regulations apply differently depending on the nature of the shortage or surplus.

• Maintaining proper documentation and evidence for inventory discrepancies can minimize tax exposure.