Value Added Tax: Understanding VAT System and Duty of Entrepreneurs (Final)

Is our business cost higher than other entrepreneurs after registering the VAT as we have to pay VAT every time we purchase goods or services?

Many entrepreneurs may have the same question and may be worried about consequences after the VAT registration. This is a controversial issue in terms of business cost management. First of all, you should be reminded that input tax is not the business cost and output tax is not an income.

In the previous articles, we have already known that the VAT is separated from price of goods and services. The VAT liability is calculated by deducting output tax with input tax or subtracting output tax from input tax. The difference between the output VAT and the input VAT will be delivered to the Revenue department or we can claim for the refund. We have to “set the price” which does not include VAT and then we will calculate by “adding” the “VAT".


For instance, if we sell a product for 1,000 baht, we have to add 70 baht for the “output tax”. So, the total price that our customer has to pay is 1,070 baht which means 1,000 baht is our income and 70 baht is the tax to be submitted to the Revenue department.

As a result, other companies which are non-VAT registrants can sell the product for 1,000 baht without having to add the VAT. And there will be a comparison between the price of the non-VAT registrants and VAT registrants for customer who buys such product and service which will affect the customer’s decision.


In case the business does not register the VAT, it cannot get the benefit from the input tax. For example, if you purchase the product for 500 baht and there is the VAT for 35 baht; the total price you have t pay is 535 baht, which is different from the business that registers VAT. That is to say, the business that registers the VAT will be able to deduct the input tax 35 baht from the output tax 70 baht and submit it to the Revenue department while the business that does not register the VAT will have the business cost 535 baht. 




This shows that the business that is the VAT registrant has an advantage over the non-VAT registrant one. That is because if there is the VAT registration, 70 baht which is collected from the customer and the input tax 35 baht can be used to deduct from the output tax. However, the VAT registrant will sell the product and service with a higher price than the non-VAT registrant. There is 70-baht difference of selling price which includes VAT which will definitely affect the customer’s decision. The customer is most likely to decide not to buy such product and service as it is the same product. He/she will choose to pay for the cheaper one which is 1,000 baht and not 1,070 baht. 




It can be seen that even though the VAT registrant tries to compete the price, the profit is lower than the non-VAT registrant. However, the entrepreneur who registers the VAT has the right to deduct input tax from output tax.



Value Added Tax: Understanding VAT System and Duty of Entrepreneurs (Part 2)

From the previous articles, we already know what the criteria for tax registration are, whether our business is exempt from VAT, or whether our business’s annual turnover exceeding 1.8 million baht. If your business is not in the list of tax exemption or has the income exceeding 1.8 million baht, you should be prepared for the VAT registration within 30 days. 


After registering VAT, we will receive the certificate for being the VAT registrant which called The Certificate of Value Added Tax registration or P.P. 20.


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                         The Certificate of Value Added Tax registration or P.P. 20.


After receiving the certificate of value added tax registration or P.P. 20, you have to do as follows;

1. Issue the tax invoice every time after selling goods or receiving money from providing services and ask for the tax invoice after buying goods or services from the entrepreneurs who are VAT registrants.

2. Use the input tax invoice to record and make the input tax report and use the output tax invoice to make the output tax report. If this is selling goods, it is necessary to make the goods and raw material report following the form from the Revenue Department.

3. Submit the VAT returns to the Revenue Department (after subtracting the output tax from the input tax and the result is positive) or claim for the refund (in case the input tax exceeds the output tax) by filing the VAT return or P.P. 30 within the 15th day of the following month.


For example, Company A buys goods and has to pay for its VAT 100,000 baht (VAT is 7% of goods is 7,000 so the total is 107,000 baht). After that the Company A sells such goods to Company B for 200,000 baht (VAT  7% of goods is 14,000 so the total is 214,000 baht). Thus, what Company A has to do are as follows;

1.    Ask for the tax invoice (when purchasing)
2.    Issue the tax invoice (when selling)
3.    Make the relevant report
4.    Submit the VAT return which is 14,000-7,000 = 7,000 baht to the Revenue Department


These are steps for entrepreneurs who are VAT registrants have to know and follow. However, you have to always think about the consistency of business cost and expense of your business every time you submit the VAT return to the Revenue Department.




Value Added Tax: Understanding VAT System and Duty of Entrepreneurs (Part 1)

What is Value-Added Tax?


Value added tax or VAT is a type of tax under the Revenue code which is levied on consumption spending on goods and services. The current rates are 7% whereby entrepreneurs have duties to collect such tax when providing goods and services from customers. Then the VAT returns are submitted to the Revenue Department. 

In general, when we buy goods and services, we will receive a tax invoice. In the tax invoice, if you notice, there will be the amount of money paid which already includes VAT. For example, if we buy a pair of jeans which costs 2,140 baht; after we receive the receipt, there will be the real price which is 2,000 baht and VAT which is 140 baht. That is the reason why the pair of jeans costs 2,140 baht.


Who has a duty to register to be a VAT registrant?

1. If you are an entrepreneur who regularly supplies goods or provides services in Thailand and has an annual income exceeding 1.8 million baht, you have a duty to apply for the registration within 30 days after its income reaches the threshold. This applies to both juristic persons and ordinary persons.

2.  Certain businesses are excluded from VAT. That means it is no necessary for entrepreneurs of such business to register to be a VAT registrant. However, the entrepreneurs can register to be the VAT registrant as well.


Is VAT also business costs?

In case your business is qualifies for VAT registration, you may question whether this increases your business cost since your business opponent may be exempt from such registration. Your business opponent will have no business cost about VAT and VAT is separated from goods and services’ prices. The VAT liability is calculated by taking the difference between the VAT on sales and the VAT on purchases. Therefore, it can be seen that the VAT registrants have an advantage over the non-VAT registrants. The reason is that if there is the VAT registration, for example, if we collect 70 baht for VAT, such VAT on purchases can be used to deduct from VAT on sales.




However, it can be seen that the difference from price which includes VAT in an amount of 70 baht may change your customers’ minds not to purchase your goods or services. If we change the price which includes VAT to 1,000 baht, the thing will change as below;




As shown in the table, if the business which registers as VAT registrants would like to compete the opponents in terms of price, the profit will be lower than the non-VAT registrants. However, what VAT registrants will benefit is an opportunity to grow your business to reach a sales turnover exceeding 1.8 million baht per year in the future.