Inventory, as the process of reconciling business records with the physical state of inventory and assets, is a crucial annual obligation for companies. During this process, occasional shortages of goods may be identified, which can lead to tax liabilities. We have examined how to handle significant discrepancies between accounting data and actual inventory and emphasized the tax aspect of shortages.
If you find that the inventory does not match the data in your business books, it is essential to investigate the reasons for the differences. Understanding the tax aspect of shortages is crucial, as, according to the Value Added Tax Act (ZDDV-1), using goods from business assets for private or non-business purposes is considered a supply of goods and triggers the obligation to account for VAT.
If the shortage is considered a supply, it may lead to a VAT liability. However, there are exceptions, such as shortages due to force majeure, such as natural disasters or theft, losses due to breakage or damaged goods occurring during storage and transportation, as long as they do not exceed standard norms.
When calculating VAT on shortages, you use the purchase cost or the self-cost that is valid on the day of the use (disposal) of the goods. If the purchase cost cannot be determined, market or accounting value is used.
It is essential to follow regulations and rules specific to your industry and to complete and submit the appropriate tax return for the VAT on shortages. Consulting with tax law experts is always advisable for these procedures.
For each industry, there is a separate regulation regarding the rates of ordinary goods write-off, such as:
- Regulation on rates of ordinary goods write-off in the food and beverage production (spoilage, waste, breakage, and shortages);
- Regulation on rates of ordinary goods write-off (spoilage, waste, breakage, damage) in the chemical manufacturing industry;
- Regulation on rates of ordinary goods write-off (spoilage, waste, breakage, damage) in the non-metallic manufacturing industry.
It is also crucial to avoid similar situations in the future by improving inventory control and security procedures. Compliance with the law is essential for smooth operations, so understanding the tax aspect of shortages and adhering to applicable regulations is vital. Inventory is not only an opportunity to reconcile records but also to prevent potential tax issues. With proper attention to the tax aspect of shortages and collaboration with experts, you will help your company stay on the right track and avoid unpleasant surprises.
