Advance income tax

An advance income tax is imposed here in Pakistan. we need to charge 2.5% on all invoices to non filler. advance income tax should be on inclusive all taxes amount how we may mange this please advise

Thanks

@lubos here are few suggestions for tax handling which would help users from many countries with complex taxation system

  1. Each Tax component as individual tax code and then Tax code groups to be created. (Just like Inventory kits, to make different combinations of those tax components defined).
  2. Allowing selection of more than 1 tax code on each line. (You can either select a group of taxes or individually each tax component) (Where each tax would appear as columns)
  3. Selecting Tax codes on transaction level (Just like current Withholding tax but with ability to define more than one tax codes)
  4. Allowing negative tax percentage or amount for withholding purposes
  5. Optional Tax on Retail value of product which would calculate taxes on separate value rather than transaction (A separate field which should appear on for each line on which tax should be calculated).

Now in above case it can be handled if there is tax code selected on each line (Then only we have to define Witholding I.T as tax component). But if tax code is not applied to every line, then its hard to get the correct tax amounts as Withholding tax needs to be calculated on whole value of transaction and the withholding tax doesn’t allow negative amounts or percentages. Only method left is to enter tax amount manually on separate line.

Best soulition is 1. Selecting Tax codes on transaction level (Just like current Withholding tax but with ability to define more than one tax codes). How we may implement ? Please guide.

Or if you are charging Further tax then this

Or this

or may be we may have allowing negative percentage and permission to change the name of Withholding tax

Continuing the discussion from Advance income tax:

Entering manually is not possible in long term need a solution

What you want can be handled by the ways i have suggested in Post#5. But in edge cases it might cause issues.
Thats why i made those suggestions in Post#2.

I’m leaning towards solving this by negative withholding tax.

How do the mechanics work?

Invoice is for 10,000 PKR.

Then we add 2.5% on top of it.

So the invoice total is 10,250 PKR but…

Customer pays 10,000 PKR to supplier and then 250 PKR to tax authority?

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Customer paid 10250, and bill nill.
We paid 250 rupees government challan in month end.

When you pay 250 PKR, do you specify to tax authority for which customer this payment is for?

Yes filer advance tax different and non filer tax 2.5 %

Filer and non filer detail submit fbr in month end.

What happens on the customer side? If they are charged tax on top of their invoice, the tax amount will be their asset (not an expense).

How is this asset account cleared?

As soon as the the customer is non filer it is an expense for him not the asset. On the other hand if the customer becomes filer subsequently then it is adjusted against their final tax liability at the time of filing annual tax return. But in most senarios as per my experience it is expensed out.

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Does the customer require some proof from their supplier that the supplier paid the tax?

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Yes, they may require tax returns or annexure submission or tax challans etc.

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I don’t think so. I think the invoice itself is a proof if he wants to claim that tax in future. When/if he file his taxes then he got the invoice as proof (I assume you are thinking about withholding tax receipts). Think of it as we are withholding tax from our suppliers so it should be handled the same way.
To make it simple it is just like charging GST (On whole invoice value) but instead of Sales Tax department you report it to the Income tax department.

Yes sales invoice itself is a proof

Advance income tax is levied on the amount payable and not on the exclusive value.