What’s the point of Sales Taxes and Charges?


I’m working on an Implementation and a very basic question pops up. ERPNext has

→ Sales Taxes and Charges Template
→ Purchases Tax and Charges Template
→ Item Tax and Charges Template

The Sales and Purchase Taxes show up in their respective forms, which si great. And Item Tax shows up on both equally which is ok. The issue here is that as with all things tax especially VAT there is a credit and debit to each transaction. If I store an item with 5% Item Tax as a Credit when I purchase, it calls for the same Credit Tax when I want to sell.

The purpose of Item Tax is to use special tax rules based on the type of item we are selling. Many countries have special rates for first necessity like milk and flour. While luxury items fall under a different tax rate. Item Tax template works perfectly in those situations. But if the same item is being bought and sold, the same tax rate is being brought up. Which again is not so bad, only issue is when we try to route the debits and credits into journal entries the credit account should be an asset while the debit account should be a liability.

Basically what I am asking, is there a way I can route Item Tax used in purchase to go into a seperate accounting chart compared to when that Item Tax is being used in sales?

You can put both accounts into the item tax template, but only the sales tax into the Sales Tax Template, and the purchase tax into the Purchase Tax Template, it means if you have VAT, you will need 2 acoounts, one “VAT on Sell” and another “VAT on Buy”, in they properly position’s on the COA, both assigned on the Item Tax Template.

But since one of the 2 will appear on the Transaction Template, ERPNEXT will ignore the second one.

I competely agree. I think the Item Tax Template tax rates should have another field added specifying Sale, Purchase or blank (both, existing behaviour). Then the same template could have different COA accounts depending on the document.
ERPNext has been designed to have a single VAT account, but as you say, some accountants like to have separate Sales & Purchase VAT account and then Journal them together when they do a VAT return.