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Chapter 10
Defining Tax on Sales and
Purchases
In this chapter, you learn various forms of taxes as they are represented in SAP ERP and learn how to define
taxes on sales and purchases.
At the end of this chapter, you will be able to:
• Describe what a tax on sales/purchases is
• Create a sales/purchases tax code
• Specify a tax category in the G/L accounts to which taxes will be posted
• Identify basic tax codes for sales and purchases
• Specify the accounts to which different tax types are posted
• Assign tax codes to non-taxable transactions
Sales and Purchases Tax
SAP supports various tax codes for different countries. This chapter covers only sales and purchases taxes.
Sales/purchases taxes are referred to VATs (value added taxes) in most countries. These are taxes are levied
on invoiced goods and services payable by the consumer and are held on behalf of the tax authority. There
are two major VATs—input taxes and output taxes. Input taxes are levied on purchases of goods and services
received from vendors. Output taxes are charged on the sale of goods and services provided to customers.
For example, Company A buys goods from Company B and charges a 20% VAT on the invoice price of the
goods. Company A sells goods to company Y and charges Company Y a 20% VAT. Company A reconciles its
VAT account and the difference is sent to the tax authority. Figure 10-1 illustrates this scenario.
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