Discounts are commonly used in business to encourage sales and improve cash flow. However, not all discounts are treated the same for Value Added Tax (VAT) purposes. Understanding the difference is essential to avoid VAT risks and incorrect tax reporting.

Types of Discounts in Business

In practice, discounts can be divided into two main categories: trade discounts and cash discounts.

Trade Discounts and VAT

A trade discount is granted at the time of sale to stimulate purchasing decisions. It is usually offered without any conditions and is immediately reflected in the selling price.

Example:
A company offers a 10% discount on products purchased between 25–31 December 2025.

For VAT purposes, the VAT base is calculated as follows:(Selling price – trade discount) × 7% VAT

Because the discount is granted at the time of sale and without conditions, it is not included in the VAT tax base.

Cash Discounts and VAT

A cash discount is granted after the sale has been completed and is intended to encourage prompt payment within a specified period.

Example:
A customer purchases goods worth THB 10,000. If payment is made within 10 days, the company grants a 2% cash discount.

• Discount amount: THB 200

• Amount paid by the customer: THB 9,800

For VAT purposes:

• VAT is still calculated based on THB 10,000

• The THB 200 discount is not deductible from the VAT base

The company may issue a commercial credit note without VAT for accounting adjustment purposes. However, a VAT credit note under Section 82/10 (1) of the Revenue Code cannot be issued.

Revenue Department Ruling: Key VAT Implications

The Revenue Department’s ruling No. Kor.Kor.0702/6077 (14 October 2025) provides important guidance on VAT treatment where discounts are granted subject to conditions.

Case Summary

• A company manufactures and sells electric motorcycles.

• It participates in a government incentive program and is eligible to receive a subsidy of THB 18,000 per unit.

• The company sells motorcycles to distributors, not directly to end consumers.

• The company reduces the selling price by THB 18,000 and collects a deposit of THB 18,000 from distributors, which is refundable once specific conditions are met.

Revenue Department’s View

The Revenue Department ruled that:

• VAT must be calculated based on the full selling price, not the discounted amount.

• This is because the “discount” is granted subject to conditions, and therefore does not qualify as a trade discount granted at the time of sale.

• When the deposit is refunded, the company cannot issue a VAT credit note, but may issue a commercial credit note without VAT.

Key Takeaway for Businesses

A discount can be excluded from the VAT tax base only if:

• It is granted at the time of sale, and

• It is not subject to any conditions.

If a discount is conditional or granted after the sale, VAT must still be calculated on the full selling price, regardless of the amount actually received.