Tax effect from destruction of product and selling product below market price

Abstract

In business operations when entrepreneurs have obsolete, defective, deteriorated or damaged products they may need to discriminate against those products by means of 1) destruction of product, or 2) selling product below market price which affects the recognition of income in the tax calculation of the business. This paper intends to collect and present information from discussed tax ruling of the Revenue Department and relevant laws which related to those issues in order to give correct practices to entrepreneurs to know and comply with the requirements of the Revenue Department. The study found that under normal circumstances, entrepreneurs must sell products at a price not lower than the market price that can be clearly proven to be reliable by the Revenue Officer. But in some cases, they may need to sell the product at a price lower than the market price for products that are obsolete,  damaged or near expiration. In order to have a reasonable reason that the Revenue Department accepts under the Revenue Department's order No. Por.79/2541, they must 1) have evidence to prove that the product has been inspected as obsolete, damaged, or near the end of its life according to the guidelines set by the business, and 2) require warehouse and accounting staff to sign as witnesses for the sale and to be used as evidence in accounting records. However, if they want to destroy the product, they do not need to request approval for destruction of products from the Revenue Department and they just notify the Revenue Department not less than 30 days before the destruction date by requiring warehouse and accounting staff to witness the destruction of products. As for the auditor's observation, it may or may not be necessary as it depends on the situation and the evidence that arises.