Explain how ‘Taxes’ are Handled in SAP.

SAP takes care of tax calculation, tax postings, tax adjustments, and tax reporting through the three FI components; namely GL, AP, and AR. The processing of the following kinds of taxes is possible:

1. Tax on Sales and Purchases
   1. Input Taxes (Purchase Tax)
   2. Output Taxes (Sales Tax)
2. Additional Taxes (these are country specific and in addition to the tax on sales and purchases)
3. Sales Tax
4. Withholding Tax
   1. Classic Withholding Tax
   2. Extended Withholding Tax

SAP allows taxation at three levels:

1. National level or federal level (Europe, South Africa, Australia, etc.)
2. Regional or jurisdiction level (USA)
3. National and Regional level (India, Canada, Brazil etc.)