VI What are the guidelines on tax policy for damaged inventory according to Official Document 10744? What types of inventory are considered for enterprises according to current regulations? What is the accounting method for inventory devaluation provisions? Let’s explore more with Pham Consult!
Guidelines on tax policy for damaged inventory according to Official Document 10744
On December 31, 2025, the Bac Ninh Provincial Tax Department issued Official Letter 10744/BNI-QLDN1 of 2025 providing guidance on tax policy for damaged inventory as follows:
Based on Clause 1, Article 23 of Decree 181/2025/ND-CP, it is stipulated:
Value Added Tax Deduction
- Input value added tax on goods and services used for the production and business of goods and services subject to value added tax is fully deductible, including uncompensated input value added tax on goods and services subject to value added tax that are lost or naturally damaged due to physical and chemical properties during transportation. Businesses must have complete records and documents proving uncompensated losses to deduct the tax. In cases where the law stipulates a natural loss limit, businesses are entitled to deduct input value-added tax (VAT) on the actual quantity of goods lost due to natural loss, provided that the loss does not exceed the prescribed limit. Input VAT on the quantity of goods exceeding the prescribed loss limit is not deductible.
Point i, Clause 2, Article 9 of Decree 320/2025/ND-CP stipulates:
Expenses deductible when determining taxable income
- Enterprises may include in deductible expenses when determining taxable income other actual expenses that meet the conditions in points b and c, Clause 1 of this Article, including:
- i) Certain expenses serving the production and business of the enterprise but not corresponding to the revenue generated during the period, including:]
i7) Costs of destroying damaged inventory due to changes in natural biochemical processes, outdated goods, obsolete goods, expired goods, goods with no usable value, goods that do not meet the conditions for circulation on the market as prescribed by specialized laws; costs of destroying raw materials, supplies, and components that are no longer needed. The cost of destroying goods at this point includes the value of the destroyed goods at the cost of goods, raw materials, supplies, and components (excluding any provision for doubtful debts as stipulated (if any)) and costs related to the destruction of goods;
i8) Cost of destroying assets due to damage and no longer being needed. The cost of destroying assets at this point includes the remaining book value at the enterprise and costs related to the destruction of assets;
The enterprise must retain and provide complete records related to the expenses at point i of this clause to facilitate inspection and auditing as required by law; Clause 1, Article 4 of Decree 123/2020/ND-CP, as amended and supplemented by Clause 3, Article 1 of Decree 70/2025/ND-CP, stipulates:
Principles for the preparation, management, and use of invoices and documents:
- When selling goods or providing services, the seller must issue an invoice to the buyer (including cases where goods and services are used for promotions, advertising, samples; goods and services used for giving, presenting, increasing, exchanging, paying as wages to employees, and internal consumption (except for goods circulated internally to continue the production process); exporting goods in the form of loans, borrowing, or returning goods) and cases of invoice preparation as prescribed in Article 19 of this Decree. The invoice must contain all the contents as prescribed in Article 10 of this Decree. In cases where electronic invoices are used, they must follow the standard data format of the tax authority as prescribed in Article 12 of this Decree.
Therefore, based on the above regulations, Bac Ninh Provincial Tax Department provides guidance on tax policy for damaged inventory as follows:
(1) Regarding input VAT deduction: Input VAT on goods subject to VAT that are lost (due to damage, loss of quality) and are not compensated is deductible if it meets the deduction conditions as prescribed in Article 23 of Decree 181/2025/ND-CP.
(2) Regarding the determination of deductible expenses when calculating corporate income tax: The inclusion of the value of damaged and destroyed inventory and the cost of destruction into deductible expenses when determining taxable corporate income tax is carried out according to the provisions of point i, clause 2, Article 9 of Decree 320/2025/ND-CP.
(3) Regarding the sale of goods that are finished goods in inventory that are destroyed: The company must issue VAT invoices, calculate and declare output VAT and determine taxable corporate income in accordance with the provisions of the VAT Law, the Corporate Income Tax Law and guiding documents.
What types of inventory does the enterprise have?
Based on Section B of Appendix II issued with Circular 99/2025/TT-BTC on the principles of inventory accounting. Accordingly, the enterprise’s inventory is determined to be assets purchased for production or sale in the normal course of production and business, including:
(1) Goods in transit;
(2) Raw materials;
(3) Tools and equipment; Work in progress;
(4) Products (finished and semi-finished);
(5) Goods;
(6) Goods consigned for sale;
(7) Raw materials and supplies in the enterprise’s bonded warehouse.
– For materials, equipment, and spare parts with a reserve period of more than 12 months or more than one normal production and business cycle; work in progress with a production and turnover period exceeding one normal production and business cycle, they should not be presented as inventory on the Statement of Financial Position but as long-term assets.
– Products, goods, materials, assets received for safekeeping, consignment, import/export consignment, processing, etc., that are not owned or controlled by the enterprise should not be reflected as the enterprise’s inventory. Instead, a detailed tracking number should be opened for products, goods, materials, assets received for safekeeping, consignment, import/export consignment, processing, etc., and this should be explained in the Financial Statements.
Accounting method for inventory devaluation provision?
The accounting method for inventory devaluation provision is stipulated in the Appendix issued with Circular 99/2025/TT-BTC as follows:
(1) At the end of the accounting period, if the net realizable value is lower than the cost of inventory, the enterprise must make a provision for inventory devaluation during the period, recording:
Debit Account 632 – Cost of goods sold
Credit Account 229 – Provision for asset losses (2294).
(2) At the end of the following accounting periods:
– If the amount of inventory devaluation provision to be made this period is greater than the amount of provision already made from the previous period, the enterprise makes an additional provision for the difference, recording:
Debit Account 632 – Cost of goods sold
Credit Account 229 – Provision for asset losses (2294).
– If the amount of inventory devaluation provision to be made this period is less than the amount of provision already made from previous periods, the enterprise reverses the difference, recording:
Debit Account 229 – Provision for asset losses (2294)
Credit Account 632 – Cost of goods sold.
(3) Accounting treatment of inventory devaluation provision for materials and goods that are discarded due to expiration, loss of quality, damage, or no longer having usable value, records:
Debit Account 229 – Provision for asset losses (amount compensated by provision)
Debit Account 632 – Cost of goods sold (if the loss amount is higher than the amount already provisioned)
Credit Accounts 152, 153, 155, 156,…
The reversal of provisions already made for inventory can be recorded immediately for each transaction at the time the inventory is discarded or when determining the amount of inventory devaluation provision at the end of each accounting period, but must be consistent with the provisions of Vietnamese accounting standards.
