Tax Code Treatment

21

I totally agree, but this failure within Manager is a flow on effect from Manager’s Sales Invoice’s WHT data entry short comings, therefore, impacts the Purchase Invoice data entry side.

Taking the Guides comment:
“If various line items on the sales invoice are subject to different withholding rates, calculate the total amount to be withheld manually and enter as an Amount . You may wish to explain the calculation in the Notes field of the sales invoice.”

That is, if you are applying differing WHT rates within the one Sales Invoice then they are being entered on the Sales Invoice as an amalgamated figure, therefore they need to be dis-amalgamated on the Purchase Invoice via line entries (if the WHT is explained) rather then a tick box, as the Sales Invoice fails to individualise the various WHT rates within the tick box.

Compare that to GST/ VAT tax rates, where those Sales Invoice’s individualised rates are allowed to be replicated on the Purchase Invoice via a mirror image process.

So the question is, why doesn’t Manager allow the individual input of multiple WHT rates within the one Sales Invoice just as it does allow other taxes, such as GST/VAT.

Yes, but you also need to track the liability through two phases as you yourself explained:
“You pay part of the invoice balance to the supplier and hold part to remit to the government.”

If this is correct, then how does the User ensure that the supplier and the government get paid their respective amounts if one doesn’t track separately the withheld amounts.

Quite frankly, another one of your illogical garbage statements.

Whilst I am fully in agreement with the usage of additional line items to resolve a data entry situation, however I find your suggestion of it’s usage in this topic as hypercritical. In almost ever other topic that proposes additional lines solutions you have poo hooed that as poor accounting with commentary such as “purchase invoices modified with line items not on the original supplier’s sales invoices could cause confusion if disputes arise or lead to adverse findings by auditors”.

Therefore can you please explain, why you think a Purchase Invoice with additional line items detailing WHT would be acceptable to an auditor, yet, according to yourself, any other usage of additional line items on a Purchase Invoice would cause confusion if disputes arise or lead to adverse findings by auditors.

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22

This comment is beside the point. You either have a sales invoice on which you are notifying your customer of the amount to withhold, or you have a purchase invoice derived from a supplier’s sales invoice where the supplier notified you of the amount to withhold. You are never faced with a need to disamalgamate on a purchase invoice withholding tax you amalgamated on a sales invoice. It is one or the other, never both.

And, if you receive a sales invoice from a supplier with withholding taxes based on amalgamated rates, you can normally enter a single line on your purchase invoice covering the total, because the taxes will be remitted to the same authority. I already discussed in post #20 what to do if withholding taxes at different rates or remittable to different authorities must be separately tracked:

Two reasons:

  1. Manager’s overall tax structure allows application of only one tax code per line item. Since most transaction line items call for some type of VAT or sales tax code, there is no possibility for a withholding tax code.
  2. The withholding tax feature was originally added to support jurisdictions where the requirement is for the customer to withhold tax at the source on the tax-inclusive total of the sales invoice. That is still the case for every jurisdiction I know about, but could obviously change.

Understand I am not defending either limitation. But modifying either would not be a simple change. And current program capabilities already allow you to handle the situation you seem concerned about—multiple withholding rates on purchase invoices—in exactly the same manner as more common situations.

The withheld amount is tracked. First, though, the supplier is not paid any withholding tax, but only the reduced balance due on the sales invoice submitted to the buyer. In jurisdictions using withholding tax, the amount of tax to withhold and the resulting reduced payable are shown on the supplier’s sales invoice. The user, of course, converts that sales invoice to a purchase invoice. So the amount owed the supplier is tracked in Accounts payable and paid from there, just like any other purchase invoice.

Tracking of amounts owed the government occurs by following the Guide, which states: “Tax you withhold from payments to suppliers is a liability of your company, because you owe that tax to the tax authority. So you must add a Withholding tax payable account to the Liabilities group of your chart of accounts.” Just as with any other tax liability account, the user is responsible for the actual payment, which is posted back to the tax liability account. But by following the Guide, you will be tracking the withheld tax owed to the government.

Please explain how the comment referred to was illogical. It observed that (a) withholding tax is calculated on the tax-inclusive sales invoice amount and (b) you must deduct on a purchase invoice the withholding amount listed on the supplier’s sales invoice. Both observations are true. The first procedure applies when you are the seller, the second when you are the buyer.

You are not modifying a purchase invoice with anything not already on the original supplier’s sales invoice. You are entering the withholding tax the sales invoice informed you should be withheld. Remember, withholding of tax at the source is not a spontaneous action under a buyer’s control. It is initiated by the supplier’s invoice.

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@Tut - Your entire premise is based on false assumptions and contradictions.

Well actually it’s not, if you read it in context with the Guide’s quote, which the comment was relating / discussing. Perhaps, if you hadn’t truncated the quote then you wouldn’t have misconstrued it.

That assumption is incorrect. WHT can be based on different aspects of the same Sales Invoice.
Take Pakistan for instant, the WHT for the State tax authority can be based on the Invoice’s tax inclusive total whereas the WHT for the Federal tax authority can be based on a percentage of the GST charged within that Invoice and could only apply to specific taxpayers.

Customer 1 gets charged 17% GST and deducts 4.5% WHT-1 of the invoice total.
Customer 2 gets charged 17% GST and deducts 4.5% WHT-1 of the invoice total plus deducts WHT-2 which is only 20% of the 17% GST.

Then you have this double talk:

If one never needs to dis-amalgamate the WHT on entering a purchase invoice, implying one line item, why would you then contradict yourself with this advise "having as many line items . . . . as necessary.

Doesn’t having many lines items = dis-amalgamating.

Yes, and there was never any suggestion to modifing that. In fact in other topics I have clearly stated “Tax Codes are a levy on a sale transaction (line item), whereas WHT’s are a financial adjustment to the payment.”

And here in lies the entire problem, in fact, if you re-read the question “why doesn’t Manager allow the individual input of multiple WHT rates within the one Sales Invoice” then you come up with solution.

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where the user can define WHT applies to the Sub-total or Tax Amount or Total.
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in the invoice ability to select more than one WHT.

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Yes, but doesn’t that equally apply to everything else on the Supplier’s Invoice - item description, selling price, discount, tax cod etc. In fact the only thing the buyer has control of, is when to pay, assuming a credit, non cash, sale. Anyhow signing off.

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I vote for having a module for WHT both for sales and purchases so that we can have specific reporting needed under different legislation.

In Italy we have WHT on total without VAT and we can have two kinds of WHT applied on the same invoice. Another “strange thing” is that even if you are under accrual accounting WHT has to be paid when you pay the supplier (so cash based) even if he didn’t emit the invoice.

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Sorry, but it was beside the point (meaning completely irrelevant to Manager’s functionality), and it is not based on any false assumption or contradiction. Your statement I quoted part of claimed that “…if you are applying differing WHT rates within the one Sales Invoice…they need to be dis-amalgamated on the Purchase Invoice….” [emphasis added). You attributed both the sales and purchase invoice to the same user. My premise, which you erroneously claim is false, is that a user never creates both a sales invoice and purchase invoice for the same transaction. I said very clearly in an earlier post that it was one or the other. That portion of my discussion was limited to the notion that you might have both a sales and a purchase invoice pertaining to the same transaction in your business. You cannot. Therefore, your statement was beside the point.

I was not making an assumption. As explicitly written, I was conveying information about how and why the withholding tax feature in Manager was developed. I stated that the condition applied only to jurisdictions I know about, but could also change. (You conveniently left out that part when quoting me.) I was not personally knowledgeable about Pakistan’s requirements. Thanks for the education.

You might notice that the very next thing I said in post #22 was that I do not defend the limitation. I went on to say that current program capabilities allow you to handle such situations on purchase invoices.

In your accusation of double-talk, you are juxtaposing quotes from two different posts. In one, I was addressing your erroneous statement about amalgamation and disamalgation of withholding taxes on simultaneous sales and purchase invoices. In the other, I was addressing what to do when a supplier sends you purchase invoice (or more accurately a sales invoice you enter as a purchase invoice) with multiple withholding entries.

Yes, but as noted above, the two quotes were from different posts making different points.

26

Blockquote

I agree to this question from @Brucanna . It would be great if we can applied WHT in each line like VAT or at the same line we can applied for VAT & WHT.