Understanding the Customs Duty Structure
India's customs duties are tied closely to the location where business is conducted and have a tax determination structure that is influenced by common factors.
Customs duty calculation methods are similar in that it is calculated based on percentage, quantity, or ad hoc amount, and they require the calculation of multiple taxes and tax lines for each tax type. The customs duty structure is designed to be flexible enough to accommodate changes that may impact rate determination resulting from changes to other taxes and legislation.
Various business rules exist for determining the basis on which taxes are calculated. Accordingly, you can define the elements that form the basis on which tax is calculated, and define the tax calculation scheme. You define how accounting entries are created for customs duty, as well as how inventory values are updated with nonrecoverable taxes.
Note: The tax structure is geared toward handling GST and customs duty.
Defining data in the common tax structure populates tables that provide the hierarchical structure for GST and customs duty determination. The core of the common tax structure consists of the following elements:
Tax component codes.
Tax dependency codes.
Tax calculation codes.
Tax categories.
Data that is defined for each of these elements is used to build the Tax Determination table (EXS_TAX_DETERM). The following diagram illustrates the basic data flow within the common tax structure, resulting in tax determination data that provides tax calculation codes to transactions:
Based on data that is stored in the Tax Determination table, the Tax Determination function (tax engine) selects default tax calculation codes for transactions by using one or a combination of parameters. It takes the transactions and lines that are in the Tax Determination table with common transaction types, tax authorities (for GST), and benefit schemes (for customs duty) and applies the following tax calculation code default hierarchies:
Tax calculation code default hierarchy for customs duty
Each level in these diagrams represents a factor in the hierarchy that can provide a tax calculation code default value. At the top of the triangle is the most specific level from which the Tax Determination function can derive a tax calculation code for customs duty. At the base of the triangle is the least specific default level.
When determining the tax calculation code to use for a transaction, the tax routine first looks to the highest default level for a value. If it cannot find one there, it moves down the relevant levels in the triangle, searching for a defined value to use.
For example, if you have a purchase order for an excise-applicable item, the system looks at the transaction supplier and item and looks to the tax determination table to determine whether a tax calculation code is defined for the supplier's tax category and item. If not, it looks to determine whether a tax calculation code is assigned to the supplier's tax category and item's tax category. It continues through the hierarchy until it finds a tax determination line that applies to the transaction.
If the Tax Determination function cannot find a tax determination line at the least-specific level, the tax calculation code derivation process is unsuccessful and no tax calculation code appears by default on the Tax page for the transaction.