The taxable type LHDN receives is arithmetic — transcript

Play this as a presentation — one slide per step, with the same narration. Every word of every step is on this page.

This lesson is for whoever at GadgetSphere sets up items and tax codes and has been asked why so many e-invoices say the tax is not applicable. In about twelve minutes you will know exactly which number decides that, why the field on the item screen is almost never the answer, and where the one place is that you can check it.

Step 1 — Find the field that looks like the answer

After this step you will know which of two similarly named things you are looking at. An item has a Taxable Type Code on its E-Invoice tab, chosen from a short list: sales tax, service tax, tourism tax, high-value goods, low-value goods, not applicable. It reads exactly like the setting that tells the tax authority what kind of tax applies to this line. Separately, the same item has a Tax tab with tax codes on it, and those codes carry rates. It is natural to assume the first controls what the regulator is told and the second controls the money. The truth is closer to the reverse.

Reference: Doc Item Maintenance — E-Invoice tab

Step 2 — Watch the value be replaced

After this step you will know what actually happens at submission. When a finalised document becomes the record that goes to the regulator, the routine that builds each line finishes by working the tax type out from the line’s tax amount. There are four branches. If the tax amount is missing, the amount becomes zero and the type becomes not applicable. If the amount is zero, the type becomes not applicable. If the amount is not zero and the type was blank, it becomes sales tax. If the amount is not zero and the type was not applicable, it also becomes sales tax. Three of those four overrule whatever somebody chose.

Reference: Tax Configuration — Lifecycle and effects

Step 3 — Name the one case where your choice survives

After this step you will know the exception, and it is narrow. There is a fifth situation the four branches do not cover: the tax amount is not zero, and the type is something other than blank and other than not applicable. Service tax, tourism tax, high-value goods, low-value goods. Nothing touches it and it goes out as chosen. That is the entire surface on which the item’s taxable type reaches the regulator. Everywhere else the field is decoration. It is worth filling in for the day the rule changes, and it is worth knowing that today it mostly does not travel.

Reference: Tax Configuration — Lifecycle and effects

Step 4 — Check the rule against what was actually sent

After this step you will test the rule on your own data rather than take it on faith. The rule is arithmetic: a line whose tax amount is zero or empty goes out as not applicable, and a line with tax goes out as sales tax, unless a chosen value survived. So take a day of your To IRB listing and read each line’s taxable type against its tax amount. Not applicable with a tax amount, or sales tax with none, would be an exception worth chasing. A line carrying service tax is the fifth situation, the one where a chosen value survived.

Reference: Tax Configuration — Lifecycle and effects

Step 5 — Understand where a zero amount comes from

After this step you will know where not applicable comes from. A zero tax amount is not an accident or a failure. It is what you get from an untaxed line: a tax code with a rate of zero, or an item that is not marked as taxable at all. Every one of those produces a zero and therefore a line telling the regulator that tax is not applicable. That is correct whenever the line really is untaxed. What matters is that it is correct by arithmetic, not because anybody reviewed it.

Reference: Tax Configuration — Lifecycle and effects

Step 6 — Decide where to look when one is wrong

After this step you will stop fixing this in the wrong place. If a submitted line says not applicable and it should say sales tax, changing the item’s E-Invoice tab will not help — the value is recomputed regardless. The line had no tax on it, and the reason is upstream: no tax code, a zero-rate code, or the item not marked taxable. Fix the rate on the line and the type follows. It also means you cannot audit this on the item list at all. The only record that can tell you what the regulator was told is the submitted line itself, and the next lesson follows the rate that produced it.

Reference: My E-Invoice Admin Applet — Before you can use it

How the steps fit together

    flowchart TD
  s1["Step 1 — Find the field that looks like the answer"]
  s2["Step 2 — Watch the value be replaced"]
  s3["Step 3 — Name the one case where your choice survives"]
  s4["Step 4 — Check the rule against what was actually sent"]
  s5["Step 5 — Understand where a zero amount comes from"]
  s6["Step 6 — Decide where to look when one is wrong"]
  s1 --> s2
  s2 --> s3
  s3 --> s4
  s4 --> s5
  s5 --> s6
  

Check yourself

Three to five questions on what you just heard. Every correct answer links to the page that makes it correct, so you can check the source, not just the mark.

Next: One tax rate, four copies, and the one that charged · Back to the series · Play this as a presentation