Businesses Must Deduct Input Tax in the Period When Purchase Returns or Allowances Occur
The Ministry of Finance(MOF) has clarified that, according to the regulations of the Value-Added Tax(VAT) Act, after a business deducts the input tax from the sales tax amount in the current period, the remaining positive balance is tax payable.
If a business purchases goods or services for its major or ancillary operations, and has declared the input tax, but subsequently experiences purchase returns or allowances and receives a refund of the input tax, the refunded amount must be deducted from the input tax in the same period in which the event occurs. Failure of declaring decrease of the input tax will cause over-declaring the input tax and underreporting the business tax.
The MOF further reminds that if a business has already declared the input tax and experiences purchase returns or allowances but inadvertently fails to report the deduction of the input tax, they may voluntarily report and pay the underpaid tax to the National Tax Bureau before investigation by the related authority. Pursuant to Article 48-1 of the Tax Collection Act, businesses may be exempt from penalties by voluntarily revising the filing, however, interest on the overdue tax payment may still apply.
For example, Company A purchased machinery equipment from Company B on March 10, 2025, at the amount of NTD315,000(VAT NTD15,000 included). Company A declared the sales tax deduction in March-April VAT filing period. Later, Company A found irreparable defect in the equipment, so both parties agreed to process a return. On May 20, 2025, Company A issued a “Sales Return, Purchase Withdrawal, or Allowance Certificate” for the returned amount of NTD300,000 and VAT NTD15,000, and delivered it to Company B. Company A must then deduct the NTD15,000 input tax in the May-June VAT filing period.
