DESKTOP EDITION CLOUD EDITION SERVER EDITION GUIDES FORUM

Recoverable & Non-recoverable Taxes


#1

I love your software and thank you all for the continuous development on this software.

I do business in India and here we have 2 types of taxation,

  1. VALUE ADDED TAX (VAT)- Which is paid to the State government
    Calculation of VAT= Tax Collected on Sales (Minus) Tax paid on Purchases

  2. CENTRAL SALES TAX (CST)- Which is paid to the Central Government
    (Interstate Purchase/Sales).
    Calculation of CST= Tax collected on Sales is the tax payable.

Keeping the two taxation methods of my country i.e India in mind, I humbly request the Development Team to make a change in the software enabling us to differentiate VAT and CST payable based on the above formulas.

Looking forward to hear from you on this regard.


#2

Have a look at http://wiki.manager.io/Tax_codes

Tax codes section under Settings tab will allow you to create custom tax codes such as VAT or CST.

Then use Tax Summary report to see how much tax collected/tax paid is there per tax code.

Keep in mind, all tax amounts are automatically posted to in-built Tax payable liability account. Is there any reason why you want tax amounts to be posted to custom liability accounts such as CST payable and VAT payable?


#3

The reason we need tax amounts to be posted to custom liability accounts such as CST payable and VAT payable is because of the calculation of CST.

Calculation of CST= Tax collected on Sales only is the tax payable.

Whereas the software does not differentiate between VAT & CST and calculates the total tax payable as Tax Collected on Sales (Minus) Tax paid on Purchases.

Request to refer the differentiation between VAT & CST total tax payable formula mentioned above.

I hope you understood what I am trying to explain.


#4

With reference to the above snapshot, applying the formula, my total tax liability should be

  1. VAT = Rs 3651.59
  2. CST= Rs 3777.40

Whereas, the in-built Tax Payable liability account is showing


#5

I guess Tax Summary can be improved so it will group amounts by tax type, then you could see total VAT and total CST on Tax Summary report. Would that solve the issue?


#6

Yup, think so.


#7

But grouping amounts by tax type should also affect the calculation of tax in the tax payable under liability.

Thats it :smiley:


#9

Have found a way, Check Amounts are tax inclusive when entering CST purchase invoices and set CST 2% at zero rate or just make another tax rate at zero % for interstate purchases.


#10

I am facing the same problem. I would like to know what exactly is “set CST 2% at zero rate”?


#11

The basic difference between CST and VAT is that VAT is refundable in nature, which fits to the features already built in the software, whereas CST is non-refundable. Is there any way that the CST is applied on purchase invoices but is excluded from the tax payable account?


#12

If CST is non-refundable tax, then don’t use CST tax code on purchases at all. Use it only for sales.


#13

For the replacement of CST, is there any way to apply a fixed charge (say, @2%) on the total bill amount in purchase invoices?


#14

You can, but why? Do you need to report to someone total purchases subject to CST?


#15

I don’t report but I need to pay my supplier the CST, which is applied @2% on the total bill amount. I need a method to keep the prices of product and tax applied distinct.


#16

Why do you feel you need to keep the price of the product and tax applied distinct? Since CST is non-refundable, then CST portion of purchase price is inseparable from accounting point of view (unlike VAT which is refundable and therefore separable).


#17

How to apply a fixed charge on a purchase invoice (say 2 or 3%) ?


#18

You can create custom tax code under Settings then Tax Codes but this is not the way to solve CST tax code issue on purchases. Based on your answers, you shouldn’t use any tax code on purchases that are subject to CST.


#19

To Solve these problems,
We can implement an option of having Recoverable & Non-Recoverable Taxes.

To explain what is recoverable and non-recoverable tax options, kindly read this:-

A tax is recoverable if you can deduct the tax that you’ve paid from the tax that you have collected.
A tax is non-recoverable if you have to remit the full amount you’ve collected regardless of what you may have paid (in the same tax).

Example 1: Recoverable Taxes
Let’s imagine a customer, Jane, who sells widgets. In the state where Jane does business, there’s a sales tax called Unpleasant Tax 1 (UT1). The tax rate is 5%. UT1 is recoverable.
When Jane sells $100 of widgets, she charges 5% UT1. In other words, she collects $5 in UT1.
When Jane buys paper for the office printer for $20, she pays 5% UT1, which works out to $1.
Since UT1 is recoverable, when it comes time to remit the tax she’s collected to the government, Jane subtracts the tax paid ($1) from the tax collected ($5), and sends the government $4.

Example 2: Non-Recoverable Taxes
Let’s imagine another customer, Paula, who sells gaskets. In the state where Paula does business, there’s a sales tax called Unpleasant Tax 2 (UT2). The tax rate is 5%. UT2 is non-recoverable.
When Paula sells $100 of gaskets, she charges 5% UT2. In other words, she collects $5 in UT2.
When Paula buys paper for the office printer for $20, she pays 5% UT2, which works out to $1.
Since UT2 is non-recoverable, when it comes time to remit the tax she’s collected to the government, Paula ignores the tax that she has paid, and sends the government all the money she collected, in other words the full $5.

This will solve the problem effectively.


#20

Yeah but what’s the point? This is just over-complicating things without purpose.

If you are purchasing something which includes tax that is “non-recoverable”, simply don’t use any tax code on that purchase at all. If it’s not acceptable, why is it not acceptable?


#21

There is a purpose and you are not understanding it. The above mentioned feature is already available in https://www.waveapps.com/ and I have copied the content from their blog https://support.waveapps.com/entries/21457283-Taxes-Recoverable-vs-Non-Recoverable