Difference between Inclusive and Exclusive Tax
- Companies follow different methods in applying tax to the products and services they offer. Some companies calculate the tax value separately from the price of the offered product, making the tax “Exclusive”. Others display product and service prices and emphasize that these prices include the tax, making the tax in that case “Inclusive” of the value of the products or services.
- Exclusive Tax: The tax value is calculated separately from the main product or service price. Afterward, the tax value is added to the product price to calculate the total value, including tax. The tax value is automatically calculated during invoice creation according to the following equations:
- “Tax Value = Product Value × Tax Rate”.
- “Product Value Including Tax = Product Value + Tax Value”.
- Inclusive Tax: The basic price of the product or service is adopted as the final value that includes the tax. The separation between the product’s value and the tax’s value is done through reverse calculation equations applied automatically during the total invoice display according to the following equations:
- “Product Value Excluding Tax = Base Product Value Including Tax ÷ (100% + Tax Rate)”.
- “Tax Value = Base Product Value Including Tax – Product Value Excluding Tax”.
Notes:
- Enerpize software supports both methods of applying tax to products and services and automatically calculates the total values of items before and after tax on sales and purchase invoices.
- By default, the Enerpize software adopts the Value Added Tax (VAT) account, and the tax in the software is applied according to the determined rate in each country.
- For more details on the calculation methods for inclusive and exclusive tax in the Enerpize software, visit the following link: [ “Calculation Methods for Inclusive and Exclusive Tax”]