Tax formulas are used in the tax calculation process. Theyhelp determine the taxable basis of a transaction line and the calculationmethodology that must be applied to obtain the tax amount.
When the parameters available on a transaction don'tsatisfy the rule conditions, the default tax formulas defined forthe tax are applicable.
There are two types of tax formulas:
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Taxable basis tax formula
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Tax calculation tax formula
Taxable Basis Tax Formula
The taxable basis tax formula is used in thetax calculation process. They help determine the amount or quantitythat should be considered as the taxable basis of a transaction line.The tax rate is applied on the taxable basis amount to derive thebasic tax amount on a transaction line.
The taxable basis type, defined in the taxable basisformula, decides the characteristics of the taxable basis amount.The various taxable basis types are:
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Assessablevalue
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Line amount
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Prior tax
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Quantity
The following standard predefined taxable basis taxformulas are available:
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STANDARD_QUANTITY
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STANDARD_TB
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STANDARD_TB_DISCOUNT
Assessable Value
Use Assessable value when the transaction line amount doesn't reflect the correct taxablebasis from the tax calculation perspective. The assessable value givenon the transaction line is considered as the taxable basis amountto calculate tax.
Line Amount
Use Line amount when the transaction line amount is to be treated as the taxablebasis to calculate tax.
The transaction line amount is considered as the taxablebasis. This is done after
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Deducting the associated discounts,or after proportionately enhancing or reducing it by a certain percentage.
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Adding other applicable taxes availableon the transaction line
These adjustments on the line amount are controlledthrough the following parameters that are defined on the tax formula:
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Subtract cash discount: The cashdiscount applicable on the transaction, derived through the attachedpayment terms, is deducted from the transaction line amount. Thisoption is considered only for Receivable transactions.
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Base rate modifier: The transactionline amount is increased or decreased based on the percentage valuegiven.
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Tax formula compounding: The taxdetails specified in the tax formula compounding region are addedto the transaction line amount to determine the taxable basis amount.These tax details are also enforced by selecting the Enforce Compounding option. If a compoundedtax is enforced but it's not calculated on the transaction, the taxassociated with this tax formula also doesn't become applicable.
Prior Tax
Use Prior tax if the taxable basis is one or more than the other taxes calculatedon the transaction line. The option to compound the prior taxes thatare calculated on the transaction line are also available.
Quantity
Use Quantity if you want to calculate tax on transactions based on the numberof units or items involved in the transaction.
Tax Calculation Tax Formula
The tax calculation tax formula is used todetermine the calculation methodology that is applied to derive thebasic tax amount on a transaction line. The tax amount on a transactionis generally calculated by multiplying the derived tax rate by thetaxable basis. However, in some cases the tax amount is required tobe altered by adding other taxes that are applicable on the same transactionline. Use a tax calculation formula defined with compounding criteriato address this requirement.
The tax details specified in the tax formula compoundingregion are added to the calculated tax that is associated with thetax formula. These compounded tax details can also be enforced whenyou select the Enforce Compounding option. When the compounded tax is enforced and when it is not calculatedon the transaction, the tax to which this tax formula is associatedwith also does not become applicable.
