VAT Functionality

VAT is used in many countries around the world. VAT is a governmental sales tax, a straight percentage that is added to the cost of goods or services. VAT can be inclusive, in which case VAT is included in the price of goods or services, or exclusive, in which case VAT must be added to the price of goods or services.

The core concept of VAT is simple: at each step in the supply chain, VAT is calculated by multiplying the cost of the goods or services by the tax rate and then charged by the seller to the buyer; normally, at each step in the supply chain except the last, the buyer can recover the VAT incurred. VAT charged by the seller and remitted to the government is referred to as output VAT, while VAT incurred by the purchaser and potentially recoverable from the government is referred to as input VAT. The application of the tax can be complex because each country has specific requirements. PeopleSoft global VAT functionality fully supports these country-specific requirements.

To implement VAT effectively in Oracle's PeopleSoft Financials and Supply Chain applications, you must fully understand the legislation governing VAT in the applicable countries before implementing the applications.

To use VAT in PeopleSoft applications, you must first set up the VAT environment. You can then create various VAT documents, such as sales orders, customer invoices, purchase orders, and vouchers. You can also record VAT for employee expense reports, asset retirements (in case of sale), bank fees incurred, and general ledger journal entries.

The VAT on these documents and transactions is calculated based upon the information that you enter. For example, the VAT codes that you enter determine the VAT rates that the system uses to calculate the VAT amount. In PeopleSoft Purchasing, Payables, Treasury, Expenses, and General Ledger, the VAT use type that you enter partly determines the amount of VAT that is recoverable.

The VAT information on all transactions and documents is loaded into the VAT transaction table by a background process and by a second process into the VAT reporting tables, from which you can create VAT returns and other VAT reports.

PeopleSoft applications enable an organization to effectively administer VAT by:

• Charging VAT on invoices to customers, recording VAT collected from customers, and paying and recording VAT charged by suppliers.

• Determining what percentage of VAT paid on purchases is recoverable to offset the amount of output VAT that must be sent to VAT authorities.

• Accounting for and reporting both the VAT paid on purchases and the VAT collected on sales.

To implement this functionality, you must be able to enter transactions into the system, correctly calculating and recording the VAT. You must also be able to report VAT correctly on the VAT return as well as account for it correctly.