An Invoice of 107,000 Baht Pays 104,000 Into the Bank — Thai Withholding Tax Is Computed on the Pre-VAT Base

This article explains principles for internal cash planning. It is not tax or legal advice. Confirm treatment with your accountant or auditor and refer to current Revenue Department announcements.

The question Thai bookkeepers are asked more than any other

"We invoiced 107,000 — why did only 104,000 arrive? Did the customer underpay?"

The customer paid in full, and 104,000 is correct to the baht. What happened is withholding tax, and its calculation contains one detail that people get wrong nationwide: the base is not the figure printed at the bottom of the invoice.

The mechanism, line by line

A service invoice:

Everything turns on the fourth line. The withholding is computed on 100,000, not 107,000, giving 3,000 rather than 3,210.

Why VAT is excluded from the base — there is a logic to it

The two taxes are levied on different things.

VAT is not income of the seller. The seller merely collects it on behalf of the state; those 7,000 baht were never the business's money, they pass through and are remitted to the Revenue Department with the PP.30 return.

Withholding tax is income tax collected in advance out of the recipient's income.

Since VAT is not income of the seller, there is no basis for it to form part of an income tax base. Withholding on 107,000 would mean levying income tax on money that is nobody's revenue at all.

Not every invoice is withheld on, and this trips people up

Rates and covered categories are set out in Revenue Departmental Order Tor.Por. 4/2528. The broad outlines a trading business should know:

• Services and hire of work — generally 3%
• Rent — generally 5%
• Transport — generally 1%
• Pure sales of goods — generally outside the scope

The trap is a single invoice covering both goods and installation — equipment sold with on-site installation, for instance. Whether the two values are separated on the invoice affects the withholding, and in practice different customers' procurement departments interpret it differently. Settle it before issuing and check with your accountant, rather than guessing and then arguing when the payment does not match.

The consequence for planning is that two invoices of identical value may deposit different amounts, depending on whether the work was a service or a sale of goods. A cash forecast has to recognise this invoice by invoice, not apply one rate across the board.

The withheld money is not lost, but it is slow — and slow is a cash problem

Those 3,000 baht are remitted to the Revenue Department in your name, and the payer must issue a withholding tax certificate (Form 50 Tawi) as evidence. When the annual corporate income tax return is filed, the accumulated total is credited against the tax payable.

In accounting terms it is therefore not an expense; it is prepaid tax, an asset.

In cash terms it is money that is not in your account today and will only become useful many months from now. A business whose revenue is entirely services has 3% of annual turnover permanently held back — not a small sum for a company funding itself on an overdraft.

The cash forecast must therefore record the net 104,000, not the 107,000, because the question the forecast answers is how much money is available that week, not how much was invoiced.

The 210-baht error that becomes tens of thousands

Withholding 3% of the 107,000 gross gives 3,210 instead of 3,000 — an error of 210 baht per invoice.

Too small to notice on one invoice, but it has two properties that make it dangerous: it happens on every invoice, and it always runs in the same direction. A business issuing a hundred invoices a month will have a forecast understating reality by roughly twenty thousand baht every month, consistently, with nobody able to trace the cause, because no invoice is wrong by enough to prompt a question.

A consistent error is more dangerous than a large random one. Random errors get challenged; consistent ones quietly become "the numbers we've always used."

The other side of the cash picture: input VAT exceeding output VAT

In a month when purchases exceed sales, input VAT exceeds output VAT. No VAT is payable that month, and the excess is not lost — it carries forward as a credit against the following month under Section 82/3.

For the cash forecast this means next month's PP.30 payment will be smaller, or zero — money that does not need to be set aside. A forecast that pencils in the same VAT payment every month will over-reserve in the months when nothing is due and then fall short in the months when the full amount is.

This cross-month credit chain is a mechanism generic cash flow templates almost never carry, because it requires each month to be computed in sequence from the one before rather than in isolation.

A tool that gets the base right from the start

13-Week Cash Flow Forecast computes the net receipt invoice by invoice, always stripping VAT out of the base before applying withholding. Enter the invoice face value and the rate that particular customer withholds, and the file places the amount that will actually reach the bank into the week it is expected — not the invoice face value. Invoices not subject to withholding take a zero rate individually. It also carries the cross-month input-VAT credit chain, so the PP.30 line in the plan falls as it genuinely would in months where input tax exceeds output tax, and includes a 48-case live self-test sheet so every figure can be checked line by line. One purchase includes both the Thai edition and the English (Thailand) edition.

→ See the product