JD Edwards World Tax Reference Guide

Updated on July 26, 2022

1 Value Added Taxes (VAT)

The following subjects are covered in this section:

A description of tax categories is provided in Section 1.1.

“Tax Calculation Example” in Section 1.2

To measure how much value is being added to a product or service, a levy known as a value-added tax (VAT) is imposed.

When a business enhances a product, such as packing it, it is required to pay VAT on the additional value (the value of the packaging). Therefore, the business must pay tax on the difference between the packaged product’s selling price and the costs of the materials and services bought to manufacture the product. When a firm sells a product, it is responsible for collecting the applicable VAT.

Note:

This guide uses the term “VAT” to refer to all value-added taxes. To avoid confusion, the guide does not utilize country-specific phrases like VAT in Belgium or GST in Singapore.

Section 1.1 of the Tax Code

Sales and purchases are subject to Value Added Tax (VAT). Only a small number of items and services are completely exempt from taxation.

There are three types of goods and services:

Taxable. In order to claim a tax credit for VAT paid on purchases, a company that solely sells taxable goods is required to collect VAT on its sales (purchases of materials that make up the product).

Tax-exempt. The VAT paid on purchases cannot be claimed as a tax credit by a business that only sells tax-exempt products. If VAT paid on purchases is lost to the company, then expenses may rise. Life insurance, mortgages, and property insurance are examples of this type of business.

Negative (tax-free). Tax credit for VAT paid on purchases can be claimed by a business that sells solely zero-rated products and does not collect VAT on its sales. A good example of one of these companies is one that makes basic foodstuffs or that exports their products.

There must be separate tracking of tax-exempt purchases and taxable or zero-rated expenditures for businesses that produce a mixture of the following categories.

Calculation of Taxes: An Example

The following is a simple VAT example for the manufacture and sale of a book:

Purchase Taxes Paid by Producers and Consumers

Sales tax is added to the purchase price.

Total Revenues Paid to the Government*

There are no logs for the Forester (log)

For a paper mill, it costs 10.00 cents to produce one pound of paper.

16.05.15.00 1.05 32.10.1.05 30.00 2.10.20 1.05

Wholesaler 30.00 2.10 32.10 35.00 2.45 37.45 .35

Retailer 35.00 2.45 37.45 40.00 2.80 42.80 .35

Consumer 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Taxes paid to the government totaled $2.80.

Sales VAT – Purchase VAT = Taxes Paid to the Government

A 7 percent VAT can be calculated and paid using the following steps:

Make sure that VAT is reflected in the selling price of the product or service. It adds 1.05 (7 percent of the 15.00 price charged) to the 15.00 sale price for paper and sells it for 16.05, for example.

VAT paid by suppliers should be included. The mill, for instance, paid. The forester will be charged VAT of 70 percent.

Subtract the sum of the VAT amounts paid from the sum of the VAT amounts received for the current tax period (step 2 above) (step 1 above). This is the government’s portion of the VAT. The mill, for example, pays the tax authority.35 (1.05 added to its selling price less .70 paid to the forester). If a company’s calculations result in a negative balance, it may be eligible for a government rebate.

The business may or may not be able to take advantage of all three processes depending on the product category (taxable, tax-exempt, or zero-rated). Only taxable products can be added to the selling price (step 1) by a business. Only for taxable and zero-rated products can a business deduct the whole of the VAT it has paid to its suppliers from the VAT it owes on the value added (steps 2 and 3).

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