Tax calculation is one of the basic aspects that individuals and companies must take into account in their financial lives, as it requires individuals and companies to analyze and estimate the taxes due and adhere to the specific laws and regulations in their country. It is worth noting that the method of calculating it directly affects personal income and corporate profits. It may have a significant impact on overall financial success and the ability to achieve future financial goals, as it provides the ability to make informed financial decisions and effective financial planning. For example, analyzing tax deductions and tax-saving strategies can help achieve a better balance between revenues and expenses. Enhancing financial growth and reducing potential risks.
How do I calculate tax on business activity in general?
Taxes are divided into:
Direct taxes: imposed directly on income or personal wealth, such as income tax.
Indirect taxes are imposed on transactions and purchases, such as sales tax and value-added tax.
To be able to calculate the tax, whatever its type, convert the tax percentage to a decimal value. For example, if you want to calculate the tax at 15%, the ratio should be converted to 0.15. Then multiply the decimal value by the value of the product or income to find out the tax value.
Example
If you have a product that costs 100 riyals and you want to calculate the tax at 15%, you can then calculate it as follows:
Tax = 0.15 * 100 = 15 riyals, which means that the value of the tax is 15 riyals and is added to the price of the product. Therefore, the product price, including tax, is: 100 + 15 = 115 riyals.
How to calculate value-added tax
Value-added tax (VAT) includes two main types:
Tax is not included.
It is the most common type in companies operating in the manufacturing and production sectors, which deal with products in two or three stages before they reach the final consumer.
In this case, the company supplies the products at their basic prices without calculating the tax, and the tax is calculated in a separate step according to the rate that will be imposed on the product or service.
To calculate the excludable tax, the following formula can be used:
- Tax = tax rate x product cost.
Example
If the value of the product that the company supplies is 1,000 riyals and the tax rate is 15%, the tax will be:
Tax = 1000 riyals x 15% = 150 riyals.
Therefore, the total invoice is the sum of the product value and the tax.
Total invoice = product value + tax = 1000 riyals + 150 riyals = 1150 riyals.
VAT included
This is most common in the retail sector, where merchants provide products and services directly to consumers, and the tax is applied directly to the value of the product or service.
In other words, if the price of the product is 1000 riyals, the actual value of the product will be 1000 riyals, which includes tax.
To calculate the tax value in this case, the process must be reversed. When requesting to show the tax value in the invoice, the following form is used:
Tax = product price, including tax, minus the basic product price without tax.
Example
Suppose that the final price of the product is 1000 riyals. To calculate the value of the added tax, we use the basic value of the product and multiply it by the tax rate.
- Basic product price = product price including tax ÷ (1 + tax rate).
- The price of the basic product is 1000 riyals ÷ (1 + 0.15) ≈ 869.57 riyals.
Then we calculate the tax value by multiplying the basic price of the product by the tax percentage:
- Value added tax = basic product price x tax rate.
- VAT = 869.57 riyals x 0.15 ≈ 130.43 riyals.
In this way, we can determine the basic value of the product and the value of the added tax.
How to calculate withholding tax
A withholding tax is imposed on individuals who are not residents of the Kingdom and who receive income from the Kingdom. This tax is deducted from any amount earned by a non-resident person in the Kingdom.
To calculate the withholding tax, you must know the category to which the person belongs, and these categories determine the applicable tax rate, as the tax rate is multiplied by the amount of profits obtained from the Kingdom to calculate the value of the tax due.
Example
If the fees of a non-resident director in Saudi Arabia amount to 10 thousand riyals and the tax rate applied to him is 20%, the tax due can be calculated as follows:
- Withholding tax = 10,000 * 0.20 = 2,000 riyals.
After deducting the tax value from his fees, his net fees will be as follows:
- His fees after deduction are 10,000 minus 2,000, or 8,000 riyals.
How to calculate excise tax in Saudi Arabia
It is one of the taxes imposed on certain goods, and it usually aims to direct consumer behavior and reduce consumption of harmful goods, such as tobacco and soft drinks. Below, I will review the method of calculating the excise tax:
Ensure that the tax is applied.
Before calculating the excise tax, you must check whether the good is covered by the tax or not, as there is a specific list of goods that are subject to this tax.
Know the tax rate.
After verifying the application of the tax, you must know the tax rate applied to the item, as excise tax rates vary according to the item, and this information can be found in the tax legislation in force in your country.
Tax calculation
Once you know the tax rate, you can calculate it. All you have to do is multiply the product price by the applicable tax rate to get the tax value.
- Tax = tax rate * product cost.
Example
If the price of a soft drink is 10 riyals and the tax rate is 50%, the value of the tax imposed will be:
- Applicable excise tax = 10 * 0.50 = 5 riyals.
The selling price includes tax.
To calculate the final selling price of the soft drink, add the tax value to the original product price.
- Selling price, including tax, = product price + tax = 10 + 5 = 15 riyals.
How to calculate income tax
Income tax is a specific rate that the government imposes on individuals and companies based on their profits and income. Here is the method for calculating income tax, which is as follows:
Determine the category that is subject to income tax.
In some countries, income tax applies to both individuals and companies, while in others it applies only to companies or high-income individuals.
For example, in Saudi Arabia, income tax does not apply to Saudis in general, but it does apply to some sectors, such as the petroleum sector and foreign persons working in commercial activities.
Determine the prescribed rate of income tax for the relevant category.
The imposed percentage varies from one country to another and from one sector to another within the same country. For example, if you work in the gas sector in Saudi Arabia, the income tax rate imposed on you may be 30% of your net profits.
Tax calculation based on net income or profits
Multiply the net profit by the income tax rate; To obtain the final amount of tax due, for example: If your net profits are 100 million riyals and the income tax rate imposed on you is 30%, The tax due will be:
Tax due: 100 million * 0.30 = 30 million riyals.
With the increasing complexity of tax systems and their continuous changes, it has become necessary for individuals and companies to be aware of the latest developments and tax legislation. It is worth noting that the Qoyod Accounting Program can calculate the tax for you, whatever its type, with just the click of a button. Which saves you time and effort, so try it now.
Conclusion
If you want to achieve financial stability and proper tax compliance, understanding tax calculation is the first step towards achieving financial success, as we can conclude that it is not just a simple digital process but rather a complex system that requires a deep understanding of local and international laws and requirements. This helps us make informed financial decisions and enhances transparency and responsibility in managing our business. In addition, good compliance with filing tax returns and paying taxes periodically according to the specified dates is a sign of integrity and constant struggle. To support society and achieve sustainable development, we cannot ignore the importance of understanding the method of calculating it, and the path can be shortened by using the Qoyod accounting program, which in turn will calculate it for you.
It is worth noting that it also offers you many things, such as point of sale systems, electronic invoice systems, sales and warehouse management, and so on, at unparalleled prices. Which makes it the best accounting program that offers a free trial.
Now that you know how to calculate the tax, wouldn’t you like to speed up the tax calculation process? So try Qoyod now for free for 14 days. It is an accounting program that achieves what you want and more.
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