VAT

Rounding

Understand how Wafeq calculates tax amounts and the effect of rounding.

How Wafeq calculates subtotal, total tax amount and total invoice amount

Here's how Wafeq calculates these amounts:

  • Total = Total of Line amount including tax for all lines
  • Line amount including tax = Quantity * Price before tax * (1 - % discount) * (1 + % tax), rounded to 2 decimals.
  • Total tax = Sum of Line tax amount for all lines
  • Line tax amount = Quantity * Price before tax * (1 - % discount) * tax, rounded to to decimals
  • Subtotal = Total - Total tax

A simple numerical example

Take the following invoice with only one line item. We assume the Price is exclusive of tax. Note how the tax amount gets rounded from 6.795 to 6.80.

LineQuantityPriceTax RateTaxLine amount
Line item 1145.3015%6.795 -> 6.8045.30 + 6.80 = 52.10
Subtotal45.30
VAT total6.80
Total52.10

Let's calculate the VAT total as a percent of the Subtotal:

VAT Total / Subtotal = 6.80 / 45.30 = 15.01103%

As you can see, VAT is no longer exactly 15% of the subtotal because of the rounding.

Is this a problem?

No. Rounding effects are present in all financial applications. Different applications may handle rounding differently.