In the field of trade, inventory management is one of the most important parts of a business’s smooth functioning, but it is not always easy. Given the mistakes made in daily activities, loss of goods, theft and other factors, the success of a business is often threatened. The threat, in turn, is realized in financial and tax risks.
In order to alleviate this problem, methodological guidelines on economic operations with insignificant economic impact were developed in 2021-2022 to determine tax liabilities:
- Methodological guidance on the non-consideration of insignificant losses of goods (food) detected in trade facilities as losses (see link ) – applies to losses of commodity and material values detected from January 1, 2020 ;
- Methodological guidance on the non-consideration of insignificant losses of non-food goods identified in trade facilities as losses (see link ) – applies to losses of commodity and material values identified from January 1, 2022 .
Below are the present methodological guidelines, where you can familiarize yourself with the established benefits, their calculation criteria, and the requirements that a merchant must meet to benefit from the benefit.
Who is affected by the benefit established by the methodological instructions?
Trading facilities, namely a store (market, supermarket or hypermarket), where the retail sale of food or non-food goods is carried out on the principle of “open warehouse”.
In order for goods to be sold on an “open warehouse” basis, the merchant must:
- User entrances and exits must be identified.
- Food and non-food goods intended for sale must be placed in a place accessible to the consumer – on shelves, in refrigerated counters, or in other storage areas.
- The customer should be able to independently and/or with the help of a cashier-consultant select the desired food or non-food item;
- The purchase and sale of food and non-food goods must be recorded using barcodes and software tools, so that both the cost of the purchased products and the amount received from the sale of the same products can be identified.
What benefits are provided by the methodological guidelines?
Insignificant losses of food and non-food goods identified in the taxpayer’s trade facilities that do not have a significant economic impact are not considered losses and will not be subject to taxes.
For methodological purposes, food products are:
- Any processed, partially processed or unprocessed product intended for human consumption
- All types of beverages (except excisable goods, wine and beverages subject to labeling/marking)
- Chewing gum
- Any substance used in food that is used as a component of food during its production and processing.
Non-food goods – any product, except:
- Excise goods;
- Wine;
- Beverages subject to labeling/marking;
- Pharmaceutical product and/or food supplements;
- For any household and/or construction and/or other purpose:
- Technique;
- Device;
- Inventory;
- Furniture;
- Textile;
- Clothing and/or footwear and/or other clothing and related accessories;
- Cosmetics and/or perfumes.
What is considered an immaterial loss and how is it calculated?
Insignificant loss is the sum of losses of food and non-food goods (separately) identified in trade facilities during the current calendar year, the market value of which (excluding VAT) does not exceed 1% of the total sales value (excluding VAT) of products sold from the taxpayer’s trade facilities during the previous calendar year, including those taxed as losses, in the case of food goods, and 0.5% in the case of non-food goods.
Note: An immaterial loss is subject to recalculation if the total realizable value (excluding VAT) of goods sold during the current calendar year, including those taxed as a loss, differs significantly from the analogous data of the previous full calendar year. In particular, the corresponding amount (turnover) compared to the previous year:
- If increased by 10% or more, losses taxed during the current calendar year are subject to reduction by adjusting the declarations for the same calendar months in which they were reflected (taxed);
- If decreased by 10% or more, untaxed losses during the current calendar year are subject to reflection (taxation) in the relevant declarations for the reporting period in December of the same year.
Example No. 1
Factual circumstance
In 2023, LLC “X” sold food from its retail outlet in the amount of GEL 150,000 excluding VAT, and non-food goods (hygiene products) in the amount of GEL 700,000.
In May 2023, an inventory conducted by the tax authority at the trading facility of LLC “X” revealed a loss with a market value (excluding VAT) of 4,000 GEL. Including: food shortage – 2,000 GEL, hygiene products (non-food goods) shortage – 2,000 GEL.
Evaluation and result
In the case of food, the immaterial loss of LLC “X” for 2023 will be 1,500 GEL (150,000 * 1%), and in the case of hygiene products (non-food goods) – 3,500 GEL (700,000 * 0.5%). As a result, only the deficit of food goods in the amount of 500 GEL (2’000 – 1’500) will be considered a deficit and will be taxed in May 2023.
If you want to make sure that your store is properly benefiting from this benefit, the Loialte team is ready to provide you with full consultation and support. For additional questions or for a consultation, visit the link .
