Material Tax Classification Issue

[Former Member]

Dear Experts,

Issue:

We have 58 material types that are classified into 9 categories which we are using for material tax classification however if a material belongs to tax classification 1 in one state, the same material may belong to tax classification 2 in another state for example the material drillbit is classified as a tool in the state of Maharashtra however the same material is classified as an equipment in the state of Gujarat. Since we can only maintain one tax classification in the material master for the entire country and the tax classification can only have numeric values 0-9 and not more we are unable to find a proper solution for this issue.

Can anyone please share your expertise and guide me.

Many thanks to all of you  in advance.

[Lakshmipathi · Accepted solution]

We have 58 material types that are classified into 9 categories 

Never heard this much of material types and I wonder in which Business Process, this much of material types are required.  Could have been handled in a better way during implementation.  Though by differentiating the Ship To tax classification, which is a standard SAP functionality for tax determination, this can be achieved, since you had indicated that your client dont want that option (I am surprised in fact), you have to develop a zee table where you can have fields like

Material Code
Delivering Plant Code
Delivering Plant Region
Ship To Region
Tax Classification
Tax Percent
Valid From
Valid To

If you want, you can add more fields suitable to Business requirement.  Once this is done, as a one time exercise, you need to upload all the materials to this zee table and provide authorization to users for SM30 or any TCode for periodical update.

Now as and when sale order is created, system should validate this zee table and fetch the required combination.  For this, you can try with any of the following sale order user exits

• USEREXIT_MOVE_FIELD_TO_VBAP in the program MV45AFZZ
• USEREXIT_CHECK_VBAP in the program MV45AFZB

G. Lakshmipathi

[Former Member]

Thank you very much for your reply Mr. Lakshmipathi, this is the kind of option i believe our client is looking at.

Mr. Naren, to elaborate further on this issue our client is into trading business with operations all over the country and the product range has about 6000 materials. These materials are categorized into 58 material types countrywide considering  each state law (as per the client). For reporting purpose they have broadly classified these 58 types to 8 categories which we have used to define the material tax classification. Now we were informed that if a material is considered as classification 1 in the state of Maharashtra then it may be considered as classification 2 in the state of Gujarat.

For example :

Material : Drill

Maharashtra : Tax Classification = 1, Tax Rate = 5%

Gujarat : Tax Classification = 2, Tax Rate = 10%

To overcome this we thought we would use the plant and customer region in the key combination to arrive at the correct tax rate i.e,

Here we are using material tax class 1 for the material instead of 2 as it should be in Gujarat so as to arrive at the correct tax rate for the state and moreover we cannot maintain the tax class state wise in standard. However Client says that If we classify material as tax class 1 instead of 2 in Gujarat as in the above example, tomorrow if the Govt of Gujarat says that all tax class 1 should have tax rate 12% which will not apply to this particular material because it was actually supposed to be in tax class 2 as per the state then we will have a problem and they do not want to keep changing/updating the master-data/records.

I hope I was able to explain the situation clearly. The solution Mr. Lakshmipathi suggested seems perfect however we are trying to see if we can find a solution without going for a development.

Many thanks for your expert advise.

[former_member184065]

Hi,

If you dont mind,please share the material master tax data ( at present ,how many tax classifications you maintained ) as well as small example to understand.

Thanks,

Naren

[former_member184065]

Hi,

Why dont you  use combination of  delivery plant region and customer region with material code to fulfill this?

Thanks,

Naren

[Former Member]

Dear Naren,

Thank you very much for your response. We have considered that option however the client does not agree as we will then be looking at the tax rate and then classify the material and not the other way round which also means that in some states the material may be classified into an incorrect classification just to get the correct tax rate. Moreover if the govt changes the tax rate for that particular classification but is not applicable to the material that is incorrectly classified then we need to keep shifting the material classification and is more tax rates are introduced in all the states then it may not be possible to maintain the conditions.

Therefore we are trying to find an alternate option that might be able to help us resolve this issue.

I hope you will be able to provide some more input.

Thanks again for your assistance.