SAP SD Tax Procedure

A tax is a financial charge or other levy imposed on an individual or a legal entity by a state or a functional equivalent of a state.

There are many types of taxes, in Business Scenarios. The very relevant one are Input Taxes & Output Taxes

•  Input Taxes are during Purchasing Transactions
•    Output Taxes are during Sales Transactions

Every Country has its own set of Taxes levied when Sales takes place. The tax calculations are likely to be complex in nature and can have very adverse effect on the bottom line. Hence it is important to have clear understanding of relevant taxes What is sold, Where is it sold, How is it sold & When is it sold  can influence relevant taxes

• In US the taxes are at Jurisdiction Level
  In UK  the taxes are considered as VAT
  In India there are  Local Sales Tax and Central Sales Tax  & VAT

 Usages of tax

• Output Taxes are a type of a Sales Tax when Sales Activity takes place. 
• Output Taxes are of two Types:- Domestic Taxes  & Export Taxes
• When sales activity takes place, output taxes are levied to the customer. 
• The output Tax revenue is collected and then paid to the respective government authority as the case may be. 
• This functionality of output Taxes helps us in calculating the taxes for various types of scenarios, accounting of tax and payments to the government authority. 
• Customers are charged output Taxes depending whether the customer is a domestic customer or an export customer. 
• In most of the countries, the output Taxes for Exports are ZERO. 
• VAT is a type of an output Tax which is uniform in the entire country. 

Tax procedure

▪       Every country has its own set of output Taxes

▪       The challenges faced are to calculate the Taxes in these various scenarios

•          Like in the US, the taxes are at Jurisdiction  Level

•          In UK, the taxes are simple which is termed as VAT.

•          In India, there are states with  VAT and there are states with other local & central taxes i.e.  LST / CST

▪        The system should calculate the taxes properly and are to be paid to the government authorities, so this is a STATUTORY ACTIVITY.

▪        Proper maintenance of Master Data pertaining to Taxes

▪        Proper accounting of Taxes , GL accounts, Tax Codes.

▪        Statutory Reporting on Taxes

Output Taxes in Country

• Each country has its own set of rules for calculation of Output Taxes
• In this courseware, we shall cover the mapping of  Output Taxes in three countries:-

•          USA

•          UK

•          India

Tax in USA

• In U.S.A., the taxes are related to the Jurisdiction code which is a combination of pin code & region.
• The Jurisdiction code is stored in the customer master.
• The Jurisdictions (State, County, Town or lower) are several levels
• The Taxes are:-

•          Domestic Taxes

•          Export Taxes

Tax in UK

• In U.K., the output taxes are called as VAT(Value Added Taxes)
• The taxes are subdivided into Domestic and Exports.

                 For U.K., the tax condition type is MWST in SAP.

• Domestic – Within U.K. e.g. sale is from UK to UK 17.5 % VAT
• Exports – It is further subdivided into:-

•          Exports to European Countries

▪       i.e. from Great Britain to France which is 0%

•          Exports to Non-European Countries

▪       i.e. from Great Britian to U.S. which is 0%

Tax in India

• In India, in SAP, there are 2 types of output Taxes:-

•           Domestic Taxes

•           Export Taxes (Zero Taxes)

•  Under Domestic Taxes, the state may be relevant for

   VAT or not    relevant for VAT.

•  If the state is relevant for VAT, then it will be either

•           VAT e.g. Maharashtra

•           CST under VAT.  e.g. Maharashtra to Karnataka

•  If the state is not relevant for VAT,then it will be

  either

•           LST(Local Sales Tax) e.g. sales from within the same state i.e. within Tamilnadu

 CST(Central Sales Tax) e.g. sale from one state to another i.e. Tamilnadu to Karnataka