Taxes on Sales and Purchases
Taxes on Sales and Purchase
Purchase Sales
Balance
Tax
Sheet
Lesson Objectives
1. Purpose
2. Use
3. Challenge
4. Tax Process flow and Description
5. Tax Calculation
6. Tax Codes
7. Tax Postings
8. Specification in G/L Accounts
9. Tax for Down Payments
10. Tax Reporting and Examples
Purpose
Taxes on sales and purchases are levied on every sales transaction in
accordance with the principles of VAT.
This applies to input and output tax.
• Purchase tax -
VAT on a taxable entity’s purchases or expense, which normally may
be offset against sales tax. It is calculated using the net invoice amount and is
charged by the vendor.
• Sales tax -
VAT on a taxable entity’s sales is Sales tax. It is charged to the
customer.
Use
• Tax Calculation
• Tax Posting
• Performing tax adjustments
• Tax reporting
Challenges
• Understand the concept of Purchase & Sales Tax
• Understand the configuration requirements for Purchase and Sales
Tax
• Understand how to manage various types of tax
• Understand how the tax types would be used for calculating, posting
and correcting tax
• Understand how to do tax reporting
Taxes on Sales and Purchase
General Preconditions for Tax Processing
Process Flow
General Preconditions for Tax Processing
1. Calculation
Procedure 2. TAX Code
6. Tax Purchase &
Sales Tax 3. G/L Account:
Reporting Tax Category
5. Document : Tax 4. G/L Account as
Information Tax Account
Taxes on Sales and Purchase
Process Description
1. Calculation Procedure
A tax calculating procedure is assigned to every country for carrying out
tax calculations. Standard SAP is having tax calculating procedure for
most countries.
A tax calculating procedure consist of :-
• Order of the steps
• Tax types or condition types
• Account or transaction key
Taxes on Sales and Purchase
Process Description
2. Tax codes
The Tax code is used to :-
• Check the tax amount on sales/purchase document
• Calculate the tax amount
• Verify the tax type
• Determine the GL account
• Show tax correctly on tax forms & reports
Taxes on Sales and Purchase
Process Description
3. GL account – Tax Category
We define the tax accounts to automatically post the tax amount to the
GL account. In this account, we enter the Tax category by entering on
of the following indicator :-
< for input tax
> for output tax
Taxes on Sales and Purchase
Process Description
GL account – Tax Category
GL Account = Tax Category
GL account
GL account Allowed
OUTPUT TAX tax codes
Tax type A
OUTPUT TAX
: > A0
Tax category A1
:
> A2
can only be posted :
to automatically X
GL account
GL account
OUTPUT TAX
INPUT TAX
Tax type V
V0
V1
: < V2
:
Tax category < :
can only be posted
to automatically
ã SAP AG 1999
Taxes on Sales and Purchase
Process Description
4. Tax account determination
To enable the automatic tax account determination, we need the
following prerequisites :-
a) Posting Keys
b) Rules
c) Tax accounts
Taxes on Sales and Purchase
Process Description
5. Document – Tax information
• Tax calculated by the system is usually posted via a separate line
item in a document.
• In some cases it further distribute tax amount to the relevant
expense/revenue items.
• In some cases, even details for exempted sales/purchase is also
recorded for information purposes.
Taxes on Sales and Purchase
Process Description
6. Tax Reporting
• In SAP, there is country specific tax reporting available.
• In most of the countries periodic return for tax on sales & purchase is
required.
• In some countries, tax-exempt Purchase & sales is also required to be
submitted to the tax authority.
• In some cases, sales made to member countries is also required to be
reported i.e. EC sales list.
Taxes on Sales and Purchase
Tax Calculation
• Before making configuration for the calculation of Tax on sales/purchase
you have to check the standard procedure provided by the SAP for the
relevant country.
• SAP provides standard calculation procedure for most of the countries
which you can use.
• However you can make the changes in condition type etc. if it is
specifically required.
Taxes on Sales and Purchase
Tax Calculation :-
Before Going for Tax configuration, you should check the
calculation procedure provided by the SAP. Standard SAP provide tax
calculation procedure for most of the countries.
You have to assign the Calculation procedure to your country
Taxes on Sales and Purchase
Tax Calculation :-
The Financial Accounting components Accounts Receivable, Accounts
Payable and General Ledger provide the following comprehensive tax
functions:
Tax calculation -
• The system calculates tax amounts with or without cash discount
based on the tax base amount.
• Tax codes are used to calculate and check the amounts.
Taxes on Sales and Purchase
Tax Calculation :-
Tax posting
• The system posts the tax amounts to defined tax accounts.
Adjustments
• The system corrects tax amounts, in the case of cash discount or
other deductions, for example.
Tax reporting
• You can use the system to create tax returns.
Taxes on Sales and Purchase
Tax Codes :-
• You have to define a separate tax code for both sales & purchases for
the country in which your company code is located
• Each Tax code can contain one or more tax rates for the different tax
types
• For reporting Exempted/Non taxable transactions to the Tax authority,
you need separate Tax code with 0 % tax rate
• In some countries, you have to assign reason for zero tax rate for the
reporting purpose
Taxes on Sales and Purchase
Tax Codes (OB40) :-
Tax code contains type of tax, percentage and GL account to which the
tax amount will be posted to.
Taxes on Sales and Purchase
Tax Codes :-
Tax codes are used to:
• Check the tax on sales/purchases amount in the document
• Calculate the amount of tax on sales/purchases automatically on request
• Calculate the non-deductible input tax portion
• Check if a tax account with tax type (input or output tax) can be posted
to
• Determine the tax account
Taxes on Sales and Purchase
Tax Postings:-
• When posting a document, the system creates the tax items automatically.
The data required to do this, the posting key, and the account number of the
tax account must be defined in the system.
• The posting keys are already defined in the system. The accounts vary
according to the chart of account, and to post taxes in the system you must
therefore define the account numbers of your chart of accounts.
• To enable the tax accounts to be specified, an account key has been
assigned to the tax types. You enter your tax accounts in the system for
each chart of accounts and account key. You enter a tax account for all
three tax types.
Taxes on Sales and Purchase
Tax Postings:-
You can distinguish tax accounts by tax codes. That is, you can
determine whether for a tax transaction represented by an account key, a single
tax account should always be posted to, or separate accounts according to the
tax code in each case. Since the advance return for tax on sales/purchases is
created from the documents, you do not need to differentiate tax accounts
according to tax code.
Taxes on Sales and Purchase
You specify the accounts to which the different tax types are posted to.
Further you have to define GL accounts for Exchange rate difference
and cross company postings of Tax.
Taxes on Sales and Purchase
Specifications in the GL accounts
You can make specifications for calculating, checking, and posting taxes on
sales/purchases in three fields in G/L accounts. These are:
• Tax category
By means of this field, you determine in the master record of a G/L account
whether the account is a tax account, a tax-relevant G/L account, or a G/L
account that is not tax-relevant.
For a tax-relevant G/L account, you can determine the tax
codes that can be used to post to the account.
Taxes on Sales and Purchase
Specifications in the GL accounts
•Posting without taxes allowed
By means of this field, you can indicate the accounts that are tax-
relevant, but for which posting of non-tax-relevant transactions without a
tax code is allowed.
Taxes on Sales and Purchase
Specifications in the GL accounts
Automatic posting only
For each account, you can use this field to determine whether you
want to have the account posted to by the system only, that is
automatically, or manually as well.
Taxes on Sales and Purchase
Tax on Sales/Purchases for Down Payments
Down payments are posted to special reconciliation accounts which are
special G/L accounts in the system.
The legal specifications determine whether or not tax on sales/purchase is to
be posted for down payments. If as a general rule you do not post any tax on
sales/purchases , you can hide the fields for the tax specifications. You do this
via the special G/L account which is a down payment account.
You can create the master records with an account group for which the Tax
category field does not appear. When creating the master record, you will not
be able to make an entry in this field.
The tax category field can also be left blank in the master record. All fields for
tax on sales/purchases are then hidden on the entry screens.
Taxes on Sales and Purchase
Tax on Sales/Purchases for Down Payments
There are two method for Tax on Sales/purchase for Down
Payments :-
1. Net display and
2. Gross display
In net display method, the tax is posted to the tax account and
down payment is posted minus tax amount.
In gross display method, the down payment posted is including
tax amount. Here also tax amount is posted to a tax account
but to clear the tax it is automatically posted to the clearing
account.
Taxes on Sales and Purchase
Tax on Sales/Purchases for Down Payments
For example if you receive 11,500 local currency from your
customer as a Down Payment including 1,500 as a tax. The entry under net
procedure will be as under :-
Taxes on Sales and Purchase
Tax on Sales/Purchases for Down Payments
The entry under gross procedure will be as under :-
Gross display has the
advantage that the down
payment amount is
displayed in the open item
accounts including the
taxes on
sales/purchases.
Taxes on Sales and Purchase
Tax on Sales/Purchases for Down Payments
Indicators for displaying taxes :-
Taxes on Sales and Purchase
Tax Reporting
You are required to create an advance return for tax on sales/ purchases on a
regular basis, and to do this you can make use of the various country-specific
programs in the R/3 System.
To credit the tax accounts, you must transfer the tax amounts to a tax payable
account by:
• Creating the postings using the program for the advance return
for tax on sales/purchases
• Posting the tax amounts manually to a tax payable account
using the Tax payable function
Taxes on Sales and Purchase
Examples :-
1. Posting Output Tax
You post an outgoing invoice to the sum of 1150 local currency
with 15 % output rate. The invoice amount, including tax, is
automatically posted to the customer account; the tax amount (150
local currency) is automatically posted to the output tax account.
Taxes on Sales and Purchase
Examples :-
2. Posting Input Tax
You post an incoming invoice with an invoice amount of 1150 local
currency with 15 % input rate. The invoice amount, including tax, is
automatically posted to the vendor account; the tax amount (150 local
currency) is automatically posted to the input tax account.
Taxes on Sales and Purchase
Examples :-
3. Posting Non-Deductible Input Tax
You have to post an incoming invoice of 1,200 local currency. The
tax amount of 200 local currency comprises of 12 %input tax and
8% non-deductible portion. You can post the non-deductible portion
either to a separate account (figure A) or distribute it to the GL
account /asset line item. figure B)
Taxes on Sales and Purchase
Tips and Tricks :-
• Here are some Tips & tricks which you can use to simplify your
configuration work :-
• Don’t forget to tick check box" post automatically only” in Tax account if you
want that tax amount should not be posted manually.
• You should choose the tax calculation without jurisdiction codes if your
business partners’ locations are restricted to few jurisdiction. That way you
can simplify the procedure by directly assigning the percentages rate to the
different tax codes.
Taxes on Sales and Purchase
Tips and Tricks :-
• You should choose the tax calculation with jurisdiction codes if you have
business relationships with companies having locations spread over many
jurisdictions, or if it is expected in the future.
• Once you have chosen one tax calculation method, you cannot change
the same.
Taxes on Sales and Purchase
Additional Information :-
Some of the important links for help :
http://help.sap.com/
http://www.sap.com/
