In purchase order VAT 5% should be calculated on net discounted amount
In the purchase order we want vat to be calculated after discount amount
total amount 21260.00
special discount: 260.00
vat 5 pc 1050.00
the error is vat is calculate on the total amount example 21260*5pc=1063
for reference the purchase order # SAF23647
VAT is calculated on net discounted amount for all purchase as well as sales transactions, except for one case and that is when discount has been added as an amount on total invoice value. This is deliberate, there is a reason for that and there is a way out.
Tuhund ERP allows you to add discounts in following ways:
- Item level as percentage
- Item level as discount on price of the article or service
- Item level as discount on item total for the article or service
- Record level as percentage where record means quotation, proforma invoice, commercial invoice (tax invoice), sales order, RFQ, RFP, purchase order, purchase invoice or any other instrument used for purchase or sale.
- Record level as discount on total amount
- As a separate line item as discount
Discount in percentage on item level or on invoice level are the most straight forward ways to give discount and leave no ambiguity. Any discount on item level is also fine.
However, when you are adding discount as amount on record level, you could actually mean two things, or in other words two distinct requirements. In your case (this example) vendor has given you a discount of SAR 260 on the total invoice vale of 21260. It could mean:
- It is an actual discount per say and VAT should be calculated on only 21,000 Saudi Riyal
- 260 SAR is not actually a discount but are written off as round off
In first case, VAT should be calculated on 21,000 SAR. This will happen if you add discount of 260 SAR as line item. Please visualize a paper bill for this. Vendor writes all items line by line and in the end adds one more line for discount. Tuhund handles it same way.
In second case, an amount is written off after calculation of taxes.
Discount on record level as percentage is perfect but discount on record level as amount is discouraged. This method has a basic problem that the only thing system can do is to assume uniform distribution of this discount. This, more often than not, might not be the case. It affects analytics and several reports. It might also affect your VAT compliance reports.