SAP and TAXATION

- By Sundar Krishnan

SAP and Taxation

In an SAP implementation TAXATION is one of the main areas, when we move across each and every
country operation. Before SAP R/3 4.7 release (Popularly known as Enterprise Version), it used to be
very painful to implement the Tax engine for a country specific requirement. Though the Country
Taxation knowledge is essential, SAP taxation knowledge too is required.
Earlier SAP developed the country specific add-on module and released the same with licenses. This
caused lot of delay in the project implementations. So based on the success of best practices, SAP
developed the TAX engine and gave it as a BUILT IN module from 4.7 version onwards.
In each and every country implementation, there is a separate COUNTRY SPECIFIC PRICING
PROCIDURE which needs to be activated. In simple SAP language it is called COUNTRY PROCEDURE. It
is like any other SD and MM pricing procedure having condition types with access sequence
combination and steps built in. Usually this country pricing procedures have conditions with formula
based calculation (For example India pricing procedure is called TAXINJ, which is condition with
formula based).
The Country procedure is further linked with the Tax code and calculates the various taxes with the
formula attached. This method was used for the last 5 years in SAP. But when CRM was introduced, this
method gave some problem as CRM being an ADD-ON module; its connector was not in sync with the
country procedures connector. Hence the TAX connector has changed from CONDITION WITH
FORMULA BASED to CONDITION BASED pricing procedure. After this change the add-on CRM module
started to work fine.
In the case of country procedure the first three letters are mentioned as TAX and the next three
letters describe the country. This helps the implementation partner to easily identify the country
procedure to be used for a specific country. After CRM introduction, the formula based pricing
procedure was withdrawn and only condition based pricing procedure is to be used (Example - In India
TAXINN is the example)
Lets discuss how the tax engine works in SAP, because unless this known, it is not possible to implement
the country procedure. Once the country for implementation is decided, the respective country
procedure is attached to the country. All country specific standard pricing procedures are available in
the standard releases.
Then based on any specific requirement, if needed, the country pricing procedure can be changed and
attached with the TAX CODE. Earlier in TAXINJ we used to maintain the tax percentages in the tax codes
itself. But after the move into condition based calculation, TAX CODE is just maintained as a description
and there are no percentages maintained. The maintained description helps in the reporting of taxes.

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SAP and TAXATION

- By Sundar Krishnan

Now question arises as to how the taxes are calculated if no percentages are maintained? They are
calculated based on the MASTER DATA maintained in conditions as tax percentages; Like in MM module,
FV11 transaction is used and in SD module, VK11 transaction is used to maintain. Multiple combinations
are available for maintaining the above said master data. By using the above transaction code select the
respective TAX condition type to maintain the tax percentages. The condition types are already attached
with the access sequence and the master data can be maintained with various combinations. In case if
you want more combinations, modify the access sequence table to suit your need. The below illustration
will help to understand the same.
Lets say the Value Added Tax (VAT) % is 20%
The condition type relevant to VAT is JVAT
Now in FV11, for a material, vendor and Plant combination, you can update the % and the relevant TAX
code V1 as a tax code and the description as INPUT VAT 20% KARNATAKA
As a next step when you create the PO, the system will calculate 20% as VAT tax on the Base price. As
per the above illustration each and every TAX condition type needs to be updated as master data.
The next master data that needs to be maintained for India implementations is through the transaction
Code J1ID. In this separate vendor master, customer master and material master needs to be
maintained. Also, the material classification, chapter Id, PAN no and VAT no needs to be maintained.
Based on the above master data updated, the TAX engine calculates the related taxes and posts the
same as per the General Ledger determination.

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