Just as the human body needs to detox from toxins that cause deterioration, company balance sheets also need to be cleared of the “toxins” that distort their structure. Continuing to keep goods that are no longer usable due to spoilage, decay, or expiration—or depreciable assets—in inventory not only results in unnecessary storage and space costs but also creates an unreal inflation in the balance sheet. Therefore, it is of great importance that these assets be removed from operations and the balance sheet through formal disposal.
This article was published in Medikal News Magazine.
The Ministry of Finance has stipulated that, by mutual agreement and provided that the designated disposal rate is not exceeded, the fair value of the disposed goods may be considered as zero.
Just like spring is the ideal season for detoxing the body, businesses should also detox their balance sheets by disposing of expired or obsolete goods.
With the addition of Article 278/A to the Tax Procedure Law on March 27, 2018, the long-standing “valuation by discretion” principle in disposal has been made more flexible. This new regulation is aimed at reducing bureaucracy and time loss, and is intended to encourage companies to act more confidently when it comes to official disposals.
In summary, it has been legislated that companies with regular disposal needs may have their disposals assessed by the Ministry of Finance based on a pre-determined method and disposal rate, without needing to apply to the Valuation Commission for each individual case.
Applications under this framework will be evaluated by the Ministry of Finance based on:
The taxpayer’s past transactions
Actual production, sales, and disposal processes
The status of other taxpayers in the same sector
Opinions of relevant authorities, chambers, and organizations
As a result of this evaluation, the Ministry may, by mutual agreement and within the approved disposal rate, accept the fair value of the disposed goods as zero.
Further details—such as which goods the disposal rate applies to, its duration, and cancellation conditions—will be clarified through subsequent communiqués and circulars issued by the Ministry.
In short, if your inventory includes goods like chemicals, pharmaceuticals, or food—which are perishable and have a limited shelf life—and you need to dispose of them regularly, you will no longer need to apply to the Valuation Commission for each disposal to determine their fair value. You will be able to carry out disposals based on the agreed disposal rate. However, one issue that still needs clarification in upcoming communiqués is:
If a company has more goods to dispose of than the allowed rate, will it need to apply to the commission for the excess portion only,
Or for the entire disposal batch?
Or will the excess portion simply not be accepted for tax deduction?
I believe these questions will be answered in an upcoming communiqué.
The VAT Issue Related to Disposed Fixed Assets Must Also Be Resolved!
Following the addition of Article 278/A to the Tax Procedure Law, Article 30 of the VAT Law was also amended. Until then, when a fixed asset became unusable (lost, expired, or delivered under exemption), the input VAT that had been previously deducted had to be declared again under the “Additional VAT” line in the return of the relevant period.
In other words, the VAT previously deducted during acquisition had to be reversed when the asset became unusable.
With the new clause added to Article 30/c of the VAT Law:
If a depreciable asset becomes unusable after completing its useful life or is delivered under exemption, all previously deducted VAT will remain deductible.
If the asset becomes unusable before completing its useful life, only the portion of VAT corresponding to the time it was used is deductible; the remaining amount must be added back to the VAT return.
Example: Let’s say a fixed asset worth 50,000 TL, with a 5-year useful life, becomes unusable at the end of the third year.
VAT deducted upon acquisition (50,000 x 18%) = 9,000 TL
Remaining useful life = 2 years
VAT to be added back: (9,000 ÷ 5) x 2 = 3,600 TL
So in this example, 5,400 TL of VAT remains deductible, and 3,600 TL must be added as additional VAT.
This amendment is a welcome change. However, the upcoming communiqué should clearly state that disposal (imha) must also be considered within the scope of “loss” (zayi)—thus, the same VAT treatment would apply.
