Did You Know You’re Overpaying VAT in Your Disposal Processes?

As stated in the “VAT General Implementation Communiqué, Section 2.4 – Input VAT on Expired or Unusable Goods,” the VAT incurred on the acquisition of goods held in inventory but which have expired or become unusable for other reasons, cannot be claimed as deductible VAT under Article 30/c of Law No. 3065.

The communiqué further specifies:
“For goods that have become waste, the input VAT that was previously claimed must be removed from deductible accounts by including it in the ‘VAT to Be Added’ line of VAT Return Form No. 1 for the taxation period in which the destruction occurs.”

In this article, we will address how to accurately calculate potentially high VAT amounts arising during disposal processes, following the Presidential Decree No. 7346 published in the Official Gazette on July 7, 2023 (Issue No. 32241), which raised the general VAT rates:

• from 8% to 10%
• from 18% to 20%

Due to these VAT rate changes, companies updated the VAT rates of their sold goods and services in their accounting systems in line with the decree. In the disposal processes we’ve reviewed after July 10, 2023, we observed that the VAT rates applied to product lists were often based on the updated post-July 10 rates of 10% and 20%, even for products procured before this date.

Naturally, since the VAT rate had been systemically updated for sales purposes, the cost basis during disposal was calculated using the new VAT rate instead of the rate applicable at the time of purchase, leading to a 2% overstatement in input VAT.

To make this clearer, let’s look at a sample scenario:

Example:

Company A prepared a product disposal list on September 30, 2023 for goods valued at TRY 20,000,000, which had expired and were deemed unfit for use due to quality concerns. Assume all the products in this list were stocked before July 10, 2023.

As shown, applying the post-July 10 VAT rate would result in TRY 400,000 of unnecessary VAT being paid.

Thanks to our consulting services, we’ve helped our clients save over TRY 5,000,000 in VAT payments only related to the July 10 VAT rate change. Combined with our other services, we’ve delivered cost advantages exceeding ten times this amount.

Our Solution to Prevent VAT Overpayments:

When preparing a disposal product list, companies should include the inventory entry date for each item. Then:

• For items purchased before July 10, 2023, input VAT should be calculated based on the old VAT rates (8% or 18%).
• For items purchased after July 10, 2023, VAT should be calculated using the new rates (10% or 20%).

By applying this method, companies can avoid overpaying VAT.

Final Tip for Year-End Disposal:

If companies have already calculated input VAT using the new rates without considering inventory dates, they can correct this by recalculating using the proper rates and submitting a letter to the relevant tax office to explain the situation and avoid excess VAT payment.

Conclusion:

If the disposal process is managed by a professional team well-versed in current legislation, companies can benefit from significant tax advantages as described above. Considering the increasing difficulty in accessing financial resources, such tax savings can be a valuable support for corporate financial health.