How to do Sales Purchase CST VAT Tax Accounting in SAP FICO
Introduction To Tax Configurations In SAP
Tax configurations are done in SAP at the country level. This is because all businesses in the same country need to follow the same taxation policies and generally accepted accounting principles while preparing their financial statements. Therefore, tax configurations in SAP are done for each country. Any company code which is then created in that country can then automatically use the tax configuration that is done for that country. So tax configurations need not be done for each and every company code again and again. This saves the effort required to carry out the tax configurations for every company code separately.
SAP allows the tax rates to be defined internally or the tax rates may be fetched from an external taxation system like Vertex. The tax configurations are stored in SAP in the form of tax calculation procedures and tax codes. These procedures can then be assigned to different countries. These procedures then become available to any company code which is created in that country.
The tax rates are provided by the tax codes are the different tax types while the method of calculation is defined in the tax calculation procedure. SAP allows the following taxes to be processed while posting documents:
Tax on sales and purchases.
Additional taxes like VAT which our country specific.
Sales and Use tax as in USA.
Withholding tax like income tax in India.
Concept Of Tax Jurisdictions
Tax jurisdictions represent the government authorities to which the taxes are paid. SAP allows up to 4 levels of tax jurisdictions representing state, county, city and others. The tax jurisdiction structure needs to be defined before the tax jurisdictions can be created in SAP. As mentioned before, the tax jurisdiction structure can have four levels. The tax jurisdiction structure defines the length of characters which will be used to represent each level in the tax jurisdiction code. The tax jurisdiction code structure needs to be defined for every tax calculation procedure.
Once the tax jurisdiction code structure has been defined, the next step is to create the actual tax jurisdiction codes. The tax jurisdiction codes need to be created for every government authority to which the tax needs to be paid.