For companies granted BOI privileges, understanding the terms “Loss” and “Scrap” is critically important — as they directly affect raw material write-offs, documentation accuracy, and compliance with BOI requirements.

🧩 Definition of “Loss”

Loss refers to raw materials that cannot be used for their original intended purpose, such as:

• Materials that are defective, substandard, or left over from production
• Raw material residues generated during the production process
• Damaged or non-sellable finished goods

🔥 Definition of “Scrap”

Scrap refers to “Loss” that has already been destroyed and no longer retains its original form.

⚙️ Types of Loss

Losses are categorized into two main types:

1. In-Formula Loss (Loss Included in Production Formula)

These are losses that can be predetermined and calculated in advance — and are approved to be included in the production formula.
Examples:

• Metal offcuts from stamping processes
• Powder dust from grinding processes

✅ These are automatically deducted from the raw material account.
🔁 Must be measured in weight, volume, or area only.
❌ If the residue can be reused or recycled (e.g., plastic scrap), it cannot be classified as in-formula loss.
💰 If it has commercial value, applicable duties or taxes must be paid before selling.

2. Out-of-Formula Loss (Loss Outside Production Formula)

These are losses that cannot be predetermined and may occur unexpectedly.
Examples:

• Raw materials damaged before production
• Waste or rejects found during quality control
• Non-conforming products after production

📌 These must undergo inspection and verification of type and quantity before write-off.
❗ Write-off is allowed only after verification is complete.

📞 For more information, please contact us today!