VAT (value-added tax)
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In some countries VAT also known as a goods and services tax (GST). It is a type of tax that is assessed incrementally, based on the increase in value of a product or service at each stage of production or distribution. VAT essentially compensates for the shared services and infrastructure provided in a certain locality by a state and funded by its taxpayers that were utilized in the elaboration of that product or service.
VAT is usually implemented as a destination-based tax, where the tax rate is based on the location of the consumer and applied to the sales price. Confusingly, the terms VAT, GST, consumption tax and sales tax are sometimes used interchangeably.
Overview :
The amount of VAT is decided by the state as percentage of the end-market price. As its name suggests, value-added tax is designed to tax only the value added by a business on top of the services and goods it can purchase from the market.
To understand what this means, consider a production process (e.g., take-away coffee starting from coffee beans) where products get successively more valuable at each stage of the process. When an end-consumer makes a purchase, they are not only paying for the VAT for the product at hand (e.g., a cup of coffee), but in effect, the VAT for the entire production process (e.g., the purchase of the coffee beans, their transportation, processing, cultivation, etc.), since VAT is always included in the prices.
The value-added effect is achieved by prohibiting end-consumers from recovering VAT on purchases, but permitting businesses to do so. The VAT collected by the state is computed as the difference between the VAT of sales earnings and the VAT of those goods and services upon which the product depends. The difference is the tax due to the value added by the business. In this way, the total tax levied at each stage in the economic chain of supply is a constant fraction.
VAT in Oracle Retail (RMS)
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At a system level, the tax calculations in RMS are governed by the system option called Default Tax Type. The tax type options are:
1) SALES - which is used for US only implementations and results in no tax calculations within RMS.
2) GTAX - which is used for Brazil implementations and assumes the taxes are calculated by an external tax engine via Oracle Retail Fiscal Management (RFM).
3) SVAT - which is used for all other implementations of RMS in which one or more locations for the retailer are subject to value added tax (VAT).
For SVAT implementations, retailers can additionally configure the tax processing in RMS by VAT region as follows:
i) Simple - VAT Regions defined as having a tax calc type of 'Simple' will have VAT computation based on the existing logic in TAX_SQL that uses rates defined for items to compute VAT on the transaction.
ii) Exempt - VAT Regions defined having a tax calc type of Exempt will not support VAT computation for transactions occurring in this region. For example, this is what would be used for US locations in an implementation that also contains locations for which VAT is applicable.
iii) Custom Tax - VAT Regions having a tax calc type of Custom will use Custom Taxation Rules that need to be defined by the retailer. The configuration required to implement this functionality is described in this section.
Note: If only one entity or location is passed into the tax function as described in the diagram above, then the tax calculation function behavior will be based on the tax calculation type of that entity or location. If the transaction involves two entities or locations (e.g. transfers), the tax calculation support will be based on the below matrix.
Role of VAT in RMS Application
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Next, to check, go to Control>System>System Variable>Localization. Here the user will be able to see the VAT being enabled.
Next, to see the VAT Codes, go to
Control>Setup>VAT Code Maintainance. Here there will be a list of Codes.
The rates for each code will be shown, when user clicks on Rates at each Code.
Next to see the VAT regions that are setup, go to Control>Setup>VAT region maintenance
To view the VAT Regions defined, Double click on VAT Region maintenance which has list of VAT Regions, with the VAT Code Type as defined earlier.
RMS by default is setup to define the VAT at department level. However if the VAT needs to be defined at Class Level, go to Control>System>System Parameter> Localization, and click on the “Class Level Tax” check box.
Setting up VAT at Department Level:
To setup the VAT at the Department Level, go to Action>Merchandise Hierarchy and select the Department.
Go to Action>Organization Hierarchy>Stores. VAT Region will be mentioned here.
Setting up the VAT Region for Warehouse:
Go to Action>Organization Hierarchy>Warehouse. VAT Region will be mentioned here.
Go to Control>Supplier. VAT Region will be mentioned here.
VAT Effect in Purchase Orders:
Once the VAT is enabled and defined in Department and defined in the Items, Purchase orders can be created for the same.
At this point, Data with Tran Code 87 will be updated in Tran_Data and further be send to GL.
This transaction code is used for recording Input VAT amount for purchases (tran code –20),RUA and RCA transactions (tran code – 20U and 20C), consignment sales (tran code– 20) and return to vendor (tran code – 24) transactions.
This record captures the units in the transaction and VAT amount at cost. For purchases,RUAs, RCAs and consignment sales, VAT amount is a positive value and is calculated as(Cost * VAT rate/100). For return to vendor transactions, the VAT amount is a negativeValue and calculated as ((cost – restocking fee) * VAT rate/100). The VAT rate is retrieved From VAT_ITEM table. Additionally, the Order Number or RTV Order Number areRecorded in the first reference field.
The ‘VAT in Cost’ transactions captured in RMS are rolled up to the subclass/day,Subclass/week and subclass/month levels for a location and posted to G/L. They are not included in inventory calculations.
Whenever a Sale is performed, data with VAT is updated in Tran_Data with Tran Code 88 and sent to GL.
This transaction code is used for recording Output VAT amount for regular sales transactions (tran code – 1 and 3), sales return (tran code – 4), franchise sales (tran code –82) and franchise returns (tran code – 83).
The ‘VAT Out Retail’ transactions captured in RMS are rolled up to the subclass/day, subclass/week and subclass/month levels for a location and posted to G/L. They are not included in inventory calculations.
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In some countries VAT also known as a goods and services tax (GST). It is a type of tax that is assessed incrementally, based on the increase in value of a product or service at each stage of production or distribution. VAT essentially compensates for the shared services and infrastructure provided in a certain locality by a state and funded by its taxpayers that were utilized in the elaboration of that product or service.
VAT is usually implemented as a destination-based tax, where the tax rate is based on the location of the consumer and applied to the sales price. Confusingly, the terms VAT, GST, consumption tax and sales tax are sometimes used interchangeably.
Overview :
The amount of VAT is decided by the state as percentage of the end-market price. As its name suggests, value-added tax is designed to tax only the value added by a business on top of the services and goods it can purchase from the market.
To understand what this means, consider a production process (e.g., take-away coffee starting from coffee beans) where products get successively more valuable at each stage of the process. When an end-consumer makes a purchase, they are not only paying for the VAT for the product at hand (e.g., a cup of coffee), but in effect, the VAT for the entire production process (e.g., the purchase of the coffee beans, their transportation, processing, cultivation, etc.), since VAT is always included in the prices.
The value-added effect is achieved by prohibiting end-consumers from recovering VAT on purchases, but permitting businesses to do so. The VAT collected by the state is computed as the difference between the VAT of sales earnings and the VAT of those goods and services upon which the product depends. The difference is the tax due to the value added by the business. In this way, the total tax levied at each stage in the economic chain of supply is a constant fraction.
VAT in Oracle Retail (RMS)
----------------------------------------
At a system level, the tax calculations in RMS are governed by the system option called Default Tax Type. The tax type options are:
1) SALES - which is used for US only implementations and results in no tax calculations within RMS.
2) GTAX - which is used for Brazil implementations and assumes the taxes are calculated by an external tax engine via Oracle Retail Fiscal Management (RFM).
3) SVAT - which is used for all other implementations of RMS in which one or more locations for the retailer are subject to value added tax (VAT).
For SVAT implementations, retailers can additionally configure the tax processing in RMS by VAT region as follows:
i) Simple - VAT Regions defined as having a tax calc type of 'Simple' will have VAT computation based on the existing logic in TAX_SQL that uses rates defined for items to compute VAT on the transaction.
ii) Exempt - VAT Regions defined having a tax calc type of Exempt will not support VAT computation for transactions occurring in this region. For example, this is what would be used for US locations in an implementation that also contains locations for which VAT is applicable.
iii) Custom Tax - VAT Regions having a tax calc type of Custom will use Custom Taxation Rules that need to be defined by the retailer. The configuration required to implement this functionality is described in this section.
Note: If only one entity or location is passed into the tax function as described in the diagram above, then the tax calculation function behavior will be based on the tax calculation type of that entity or location. If the transaction involves two entities or locations (e.g. transfers), the tax calculation support will be based on the below matrix.
Role of VAT in RMS Application
-----------------------------------------------------
To setup the Vat in RMS, first the VAT Indicator
needs to be enabled as a part of initial setup of RMS.
Next, to check, go to Control>System>System Variable>Localization. Here the user will be able to see the VAT being enabled.
The rates for each code will be shown, when user clicks on Rates at each Code.
Next to see the VAT regions that are setup, go to Control>Setup>VAT region maintenance
To view the VAT Regions defined, Double click on VAT Region maintenance which has list of VAT Regions, with the VAT Code Type as defined earlier.
Defining
of the VAT can be done either at Department or at the Class Level.
RMS by default is setup to define the VAT at department level. However if the VAT needs to be defined at Class Level, go to Control>System>System Parameter> Localization, and click on the “Class Level Tax” check box.
Setting up VAT at Department Level:
To setup the VAT at the Department Level, go to Action>Merchandise Hierarchy and select the Department.
Select a Specific Department and click on Options
and Select VAT Maintenance to view the VAT regions assigned to the Department.
The list of all VAT Regions will be shown here, with the Rate% for each region.
Setting up the VAT
Region for Store:
Go to Action>Organization Hierarchy>Stores. VAT Region will be mentioned here.
Setting up the VAT Region for Warehouse:
Go to Action>Organization Hierarchy>Warehouse. VAT Region will be mentioned here.
Setting up the VAT Region for Supplier Site:
Go to Control>Supplier. VAT Region will be mentioned here.
VAT availability at
Item Level:
VAT Effect in Purchase Orders:
Once the VAT is enabled and defined in Department and defined in the Items, Purchase orders can be created for the same.
Total order Cost: 1000(1 EA)
Total Order Retail (Excl. VAT): 2000 (50%
markup on cost using Cost Method of Accounting)
Total VAT: 400(20% of 2000 = VAT)
Total Order Retail (Incl. VAT) : 2400 (2000 +
400)
At this point, Data with Tran Code 87 will be updated in Tran_Data and further be send to GL.
This transaction code is used for recording Input VAT amount for purchases (tran code –20),RUA and RCA transactions (tran code – 20U and 20C), consignment sales (tran code– 20) and return to vendor (tran code – 24) transactions.
This record captures the units in the transaction and VAT amount at cost. For purchases,RUAs, RCAs and consignment sales, VAT amount is a positive value and is calculated as(Cost * VAT rate/100). For return to vendor transactions, the VAT amount is a negativeValue and calculated as ((cost – restocking fee) * VAT rate/100). The VAT rate is retrieved From VAT_ITEM table. Additionally, the Order Number or RTV Order Number areRecorded in the first reference field.
The ‘VAT in Cost’ transactions captured in RMS are rolled up to the subclass/day,Subclass/week and subclass/month levels for a location and posted to G/L. They are not included in inventory calculations.
Whenever a Sale is performed, data with VAT is updated in Tran_Data with Tran Code 88 and sent to GL.
This transaction code is used for recording Output VAT amount for regular sales transactions (tran code – 1 and 3), sales return (tran code – 4), franchise sales (tran code –82) and franchise returns (tran code – 83).
This record captures the units in the transaction
and VAT amount at retail. For sales transactions VAT amount will be positive
value and for return transactions, VAT amount will be negative value. VAT rate
is retrieved from VAT_ITEM table. Additionally, for franchise transactions, the
associated transfer number is captured in the first reference column.
The ‘VAT Out Retail’ transactions captured in RMS are rolled up to the subclass/day, subclass/week and subclass/month levels for a location and posted to G/L. They are not included in inventory calculations.
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