SAP uses Condition Method technique to calculate taxes in the system. These condition method techniques not used for Withholding tax. System defined tax calculation procedure and tax codes are used in calculating the tax amount.

Tax code describes following- -

• Tax type
• Amount of tax calculated / entered
• GL Account for tax posting
• Calculation of additional tax

A Tax Calculation procedure contains the following fields -

• Steps - It determines the sequence of lines within the procedure.
• Condition Type - It indicates how the tax calculation model will work.
• Reference Step - system obtains the amount / value and it uses in its calculation.
• Account / Process Keys - provides the link between the tax procedure and the GL Accounts to which tax data is posted.

Tax calculation/determination procedure have the below steps -

• Define tax category
• Define tax types
• Assign the plant for tax determination
• Define material taxes
• Define tax determination

Define Tax Category: -

Tax Category is used to group and manage similar product tax rates or service tax rates. Tax Rates are defined for each of the tax codes. The tax rates are linked to Tax Types and are included in the tax procedures.

A single tax code can have multiple tax rates for various tax types. The tax code is assigned to a Tax Procedure, which attaches to a GL master record. A specific tax procedure is accessed whenever that GL account is used in document processing.

Step-1: Enter the transaction code OVK3 in the SAP command field and click Enter to continue.

Step-2: In the next screen, click on New Entries button.

Step-3: Enter the below details and click on Enter.

• Tax Categ. - Select the tax category from the list.
• Tax class. - Enter the tax class
• Description - Enter the description

Step-4: Once all the details entered, click on the Save button to save the changes.

Step-5: Status bar displays the below message once the tax category saved successfully.

Define Tax Types: -

Step-1: Enter the transaction code OVK1 in the SAP command field and click Enter to continue.

Step-2: In the next screen, click on New Entries button.

Step-3: Enter the below details and click on Enter.

• Tax count. - Select the tax country from the list
• Seq. - Enter the sequence number
• Tax categ. - Select the tax category

Step-4: Once all the details entered, click on the Save button to save the changes.

Step-5: Status bar displays the below message once the tax types saved successfully.

Assign the plant for Tax Determination: -

Step-1: Enter the transaction code OX10 in the SAP command field and click Enter to continue.

Step-2: In the next screen, click on New Entries button.

Step-3: Enter the below details and click on Enter.

• Plant - Enter the plant name
• Name1 - Enter the plant name
• Country Code - Select the country code from the list
• City code - Select the city code from the list

Step-4: Once all the details entered, click on the Save button to save the changes.

Define Material Taxes: -

Step-1: Enter the transaction code OVK4 in the SAP command field and click Enter to continue.

Step-2: In the next screen, click on New Entries button.

Step-3: Enter the below details and click on Enter.

• Tax Categ. - Select the tax category from the list
• Tax class. - Enter the tax class
• Description - Enter the description

Step-4: Once all the details entered, click on the Save button to save the changes.

Step-5: Status bar displays the below message once the material taxes saved successfully.

Define Tax Determination: -

Step-1: Enter the transaction code VK12 in the SAP command field and click Enter to continue.

Step-2: In the next screen, enter the condition type and click on Enter.

Step-3: Select the Domestic taxes and click on Right mark.

Step-4: Enter the below details and click on Run button.

• Country - Select the country from the list
• TaxClass1-Cust. - Enter the tax class1 customer
• Tax class.material - Enter the tax class for material

Step-5: Below report gets displayed.