Consumption Tax

Consumption tax is a type of indirect tax levied on certain goods at various points, including import, manufacturing, sales and export. Typically, it applies to products such as plastics, tobacco and certain petroleum-based products. The specific products and tax rates are determined by the government of each country. This tax is generally included in the price paid by the consumer, with the seller responsible for collecting and remitting it periodically. Common types of consumption taxes include VAT (Value Added Tax), GST (Goods and Services Tax), and sales tax. Although borne by the end consumer, consumption tax is collected throughout the supply chain during production and distribution.

Key Scenarios for Charging Consumption Tax :

1. Initial Acquisition of Goods:
   Consumption tax is applied when a customer places an order for sales of manufactured goods, including both wholesale and retail transactions. The seller is responsible for calculating and collecting the tax.
2. Consumption of Own Manufactured Goods:
   Businesses that produce goods for internal use or consumption must still account for consumption tax, even if the goods are not sold to external parties.
3. Imported Goods:
   Imported goods can be subject to consumption tax, which is calculated based on the customs value of the goods. Importers must pay the tax before clearing customs.

Consumption Tax settings in IFS Cloud

Inventory Part:

In the application the Consumption Tax toggle is available on the Inventory Part page. This parameter indicates whether a part is subject to consumption tax or not.

Sales Charge Type Category:
In Sales Charge Group page, the Charge Type Category: Tax can be used to differentiate tax related charges from other standard charges. Sales charges in this category have the following key characteristics when used in a sales charge type:

• The sales charge cost is set to zero.

• Charges are calculated per unit since taxes apply on a per-part basis.

• The tax code for the charge is set to zero to prevent tax-on-tax calculations.

• The sales charge line inherits the same tax code as the associated sales part, ensuring consumption tax is calculated based on both the sales price and the tax.

To connect a sales charge type of category Tax to a sales part or use the sales charge in a customer order, the sales part must be connected to an inventory part enabled for Consumption Tax.

Reporting of Consumption Tax:

The Consumption Taxation Law is comprehensive, with reporting requirements that may vary based on product type and government regulations. Standard reports are usually generated periodically to comply with tax authorities. The IFS Business Reporter (IFS BR) tool is recommended for creating these reports, as it provides access to all relevant transactions through its information sources.

• To create a report on raw material consumption for a specific time period, use the "Shop Order Material" information source, which contains shop order line details.
• To generate a report on the quantity of finished goods produced, use the "Shop Order" information source, which includes shop order header details.
• For reporting the number of finished goods sold, use the "Customer Invoice Lines" information source, which contains detailed customer invoice lines.
• To report the number of finished goods exported, use the "Customer Invoice Lines" information source.
• For tracking inventory stock levels over a specific period, use the "Inventory Turnover" information source, which aggregates inventory transactions for each reporting period.