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Its all about Taxation

Posted on February 28th, 2009 by Sanjit Anand |Print This Post Print This Post |Email This Post Email This Post

Do you know when a well-designed Integrated system(like OracleApps/SAP) once properly deployed can connect every area of your organization—HR, customer service, internal business processes, inventory control, financial data centres, company information, order tracking, etc.—thereby the next big things is to improving your company’s effectiveness and efficiency for tax reporting need within product or outside product.

Taxation is having very complex model from implementation mapping point of view and must can be considered in two dimension.

  • U.S. Taxes requirement
    • Sales Tax
    • Seller’s Use Tax
    • Consumer’s Use Tax
    • Rental Tax
    • Leasing Tax
  • International Taxes
    • Input VAT
    • Output VAT
    • Import VAT
    • Export VAT
    • Acquisition VAT
    • Consumption Tax
    • Goods and Services Tax

Oracle EBS itself catering almost tax requirement expect few. Lets recap some of basic understanding of different tax type that might be big help and consideration for ERP implementation.

  • VAT
    In simple layman term you understand like when you sell something you add on tax which is payable to the tax authorities. When you buy something you are able to recover the tax.Normally the net amount is paid to the tax authorities. Certain items are not recoverable, hence the term recoverable and non recoverable taxes are considered.

VAT is imposed on the value added to goods or services at each stage of their supply. The VAT charged on a customer invoice is referred to as Output Tax. Any VAT paid on a vendor invoice is referred to as Input Tax.

The amount due each period can be described as follows:

Amount Due = Output Tax - Input Tax

  • GST

Goods and Services Tax – used in Canada and Australia ,Singapore– Similar to VAT

  • Withholding Taxes

A withholding tax is where an amount is withheld from a payment to the supplier and paid to the tax authorities. If the overall payment due to a supplier was say 120, it may be that they are only paid 100, the remaning 20 being paid over. Essential you are acting as a tax collector. This only applies to certain types of supplier in certain countries.

  • Recoverable Tax

Recoverable tax is one , which you can recover from your sales.

You can say VAT system. one suffer Tax when a person makes sales and which can be adjusted against the tax suffered when you make a purchase(Recoverable portion only) , end of the day , you pay to the tax authorities the Net of Tax paid on purchase and tax included on your sales.

  • Sales Tax

Sales taxes are tax levies charged on applicable revenues according to law; and reported and paid periodically to the relevant taxing jurisdiction.

Understanding is very important . Take a case with USA implemenation.

There is one basic rule that we need to understand when it comes to calculating tax, which is always calculated for the destination shipping address.

Take senarios : Dell.com is an online retail website. It ships all its orders from a Warehouse. There are a couple of customers ordering a laptop of Model xyz drive on the website. One of the customers resides in NY and the other resides in the CA.

Now we have to decide which state’s tax law should we apply for calculating tax for the Laptop? Is it Dell for both of the customers? No its not.

For the customer who resides in NY, NY’s state’s law will apply and for the customer in CA, CA’s tax laws will apply.

Let’s understand the simple method:
List price of Laptop = $800
Tax on Laptop in NY = 7 %
Tax on Laptop in CA = 5 %
Sale price of Laptop for the customer in NY = $856.00
Sale price of Laptop for the customer in CA = $840.00
So, we understand that two customers, in two different states, might end up paying two different prices for the same product purchased.

  • Use Tax or consumption tax

These are some sort of levied by local jurisdictions where goods and services are delivered from outside the jurisdiction but consumed locally, and are often accrued and paid by the buyer rather than the seller. Thailand is one such usage of such tax.Japan levies a consumption tax on the value of goods.

More on VAT

As Value Added Tax or VAT is a tax or levy on the business at all levels of the manufacture and production of a good or service rendered and based on the increase in price, or value, is provided at each level. The percentages of VAT vary depending on the goods or services provided.

Benefits of VAT?

The VAT has numerous benefits. They are:

  • It reduces cascading affects of taxes and removes distortions
  • It removes artificial incentives affecting choice of location of business since the VAT percentage on a particular type of good or service is same across all territories within the country
  • It is eminently collectible and more transparent; it renders high cost to businesses not being part of VAT chain; i.e. if someone conceals the output, one cannot get refund on input
  • Exports could be freed from Tax burden with World Trade Organization (WTO) compatibility

VAT @EBS

The VAT is defined as a Tax code in Oracle Applications in Accounts Payable module and the tax is attached to the invoice lines so that the tax is calculated as a positive tax on the invoice distribution lines.

What is important for Implementor for Tax

  • Data identification and configuration (aka set up)
  • Sales and use tax software integration (If using any third party tax software)
  • Record retention
  • Reporting : what is required is comprehensive data requirements of a tax department and tax reporting feature in ERP

Where is the Tax integration required

  1. Order Management :Estimation of Sales Tax on Sales Orders
  2. Accounts Receivables (AR) :Calculation of Sales Tax on Standard AR Invoices ,Credit memos/Debit memos & Adjustments ,Recurring invoices ,Manual invoices
  3. iReceivables (credit memo requests)
  4. Service & Project Billing (via AutoInvoice to AR)
  5. CRM (iStore and Quoting via Order Capture)
  6. Oracle Internet Expenses
  7. Payables : GST included tax supplier Invoice
  8. Purchasing :Estimate sales tax on POs, and update committed spend in Projects
  9. Inventory :Self-accrue use tax on material transaction movements
  10. General Ledger: Manually keyin Journal Entries
  11. Oracle Trade Management
  12. Oracle Services Contracts

Third Party tax @EBS

Vertex and Taxware are the two supported 3rd Party Software Vendors that Oracle Receivables uses to integrate with for tax calculating purposes. If you setup the integration the tax rates that are stored in the Oracle locations and rates tables are override and the calculation is done in the tax vendor.There is another Third party tax software called is SABRIX which is also widely used.

Next will discuss some important features of E Business tax . Till than ..:)

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