Goods lost, stolen or destroyed: the input-tax question

Stock gets lost, stolen in a break-in, or destroyed in a fire or flood. Owners often ask whether they owe sales tax on it — but that is the wrong worry. There is no tax on a loss, because nothing was sold. The real sales tax consequence sits on the input side: the credit you already took on those goods. Handling it correctly, with evidence, is what keeps a genuine loss from looking like a hidden sale.

No output tax on a loss

Sales tax is charged on supplies. Goods that are lost, stolen or destroyed are not supplied to anyone — there is no sale, no consideration, no recipient. So there is no output tax on the loss itself, and you do not raise a tax invoice for stock that has simply gone. This is the straightforward half of the answer, and it is worth stating plainly because businesses sometimes fear they must somehow account for output tax on destroyed stock. They do not. The question that actually matters points the other way.

The input-tax reversal

Input tax credit is given on the premise that the goods will be used to make taxable supplies. Goods lost or destroyed before sale never result in a taxable supply, so the input tax attributable to them — the credit taken on those goods or the inputs that went into them — can fall to be reversed. The underlying logic is consistent with how input tax apportionment works: credit is meant to follow inputs into taxable output, not into a write-off. The exact mechanism and any thresholds depend on the current rules, so the treatment should be confirmed, but the direction of travel is a possible reversal of input tax rather than any output charge.

Insurance recoveries and evidence

Two practical points complete the picture. First, an insurance recovery for lost or destroyed goods is generally an indemnity — compensation for the loss — rather than consideration for a supply of the goods, though the treatment can vary and should be checked. Second, and most important, a claimed loss must be evidenced: a police report or FIR for theft, a fire or survey report for destruction, insurance correspondence, and stock records showing the goods and their removal. Without credible documentation, a loss can be recharacterised as an undocumented disposal or a suppressed sale, with tax demanded accordingly. The paper trail is the difference between a recognised loss and a taxed one.

Common mistakes

• Worrying about output tax on destroyed stock while overlooking the input-tax credit already claimed on it.
• Writing goods off with no FIR, fire or survey report, leaving the loss undocumented.
• Treating an insurance recovery as if it were a taxable sale of the goods.
• Assuming a loss needs no action at all for sales tax purposes.

Where it fits

Losses sit alongside the treatment of damaged and obsolete inventory write-offs, which raise the same input-tax reversal question in a different guise, and they turn on the broader mechanics of input and output tax. Because a loss is defended on evidence, it connects directly to keeping the records the law requires. Charge no output tax, address the input tax, and document everything.

Sources

This guide is written against the official and clearly labelled professional references below. Rates, thresholds and portal procedures change between reviews, so open the primary source before relying on a figure.

• Sales Tax Act 1990, amended through 30 June 2026 (FBR)
• Sales Tax Basics (FBR)

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