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Value Added Tax: 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. It means that there 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.



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