I bought some stock from a supplier locally. Because he is not registered with our tax authority I had to deduct 10% withholding tax. I followed the procedure described in the guide for purchase invoices.
However, the invoice from the supplier and consequently the withholding tax are denominated in USD while my base currency is ZWL. Between the time of the invoice being issued and my paying the withholding tax to the tax authority (in USD), changes in the USD:ZWL exchange rate meant that the equivalent ZWL reported in Manager changed, and I ended up with a negative balance in my Withholding tax payable account equivalent to the difference resulting from the exchange rate fluctuation.
How can I write off this balance, or allocate it to foreign exchange losses? There isn’t an option in the payment to the tax authority to specify the ZWL amount. Originally I allocated it to a “tax expenditure” account, but my accountant emphasised that it is not really tax expenditure and should be a foreign exchange loss. I agree. Should I create my own custom foreign exchange gains / losses account for situations like this, or is there some way I can use the built-in Foreign exchange gains (losses) account?
Here are all the transactions from my Withholding tax payable account:
The problematic transactions are those circled in red, where the amount from the invoice and the amount paid are different in the base currency because of currency fluctuations. Journal entry 7 is what I need to remove or correct; it has cleared the balance by allocating it to my Tax expenditure account, which I don’t think is acceptable.
Another potential issue once I get this resolved is how to account for the US$0.11 rounding difference between what was calculated on the purchase invoice and what I paid to the tax authority. We don’t have or use denominations smaller than $1 in US dollars here.