{"id":148699,"date":"2026-09-27T11:51:59","date_gmt":"2026-09-27T11:51:59","guid":{"rendered":"https:\/\/docs.daftra.com\/tutorial\/%d8%a2%d9%84%d9%8a%d8%a9-%d8%a7%d8%ad%d8%aa%d8%b3%d8%a7%d8%a8-%d8%a7%d9%84%d8%b6%d8%b1%d8%a7%d8%a6%d8%a8-%d8%b4%d8%a7%d9%85%d9%84%d8%a9-%d8%ba%d9%8a%d8%b1-%d8%b4%d8%a7%d9%85%d9%84%d8%a9-%d8%b6\/"},"modified":"2026-10-04T12:22:42","modified_gmt":"2026-10-04T12:22:42","slug":"how-taxes-are-calculated-inclusive-exclusive-two-taxes-on-the-same-item","status":"publish","type":"tutorial","link":"https:\/\/docs.daftra.com\/en\/tutorial\/how-taxes-are-calculated-inclusive-exclusive-two-taxes-on-the-same-item\/","title":{"rendered":"How Taxes Are Calculated (Inclusive \/ Exclusive \/ Two Taxes on the Same Item)"},"content":{"rendered":"<div dir=\"ltr\" lang=\"en\">\n<p style=\"margin: 0 0 14px; line-height: 1.9; font-size: 16px; color: #1f2430;\">The system calculates taxes at the level of each line in the invoice, and lets you apply two taxes to a single line. Each tax is either exclusive, so it is added on top of the price, or inclusive, so it is part of the written price. This guide explains how to add taxes, the formula for each type, how the two taxes are calculated together, and the order of discount and tax, with numerical examples.<\/p>\n<h2 style=\"font-size: 22px; font-weight: bold; color: #111827; margin: 32px 0 14px; padding-bottom: 8px; border-bottom: 2px solid #eef0f3;\">Before You Start<\/h2>\n<ul style=\"margin: 0 0 16px; padding-left: 26px;\">\n<li style=\"margin-bottom: 10px; line-height: 1.9; font-size: 16px; color: #1f2430;\">You need the permission to manage taxes from Manage Employee Roles.<\/li>\n<li style=\"margin-bottom: 10px; line-height: 1.9; font-size: 16px; color: #1f2430;\">Add taxes from the Tax Settings screen before using them in products or invoices.<\/li>\n<\/ul>\n<h2 style=\"font-size: 22px; font-weight: bold; color: #111827; margin: 32px 0 14px; padding-bottom: 8px; border-bottom: 2px solid #eef0f3;\">Steps to Add a Tax<\/h2>\n<ol style=\"margin: 0 0 16px; padding-left: 26px;\">\n<li style=\"margin-bottom: 10px; line-height: 1.9; font-size: 16px; color: #1f2430;\">Open the Taxes screen.<\/li>\n<li style=\"margin-bottom: 10px; line-height: 1.9; font-size: 16px; color: #1f2430;\">Click Add to add a new row.<\/li>\n<li style=\"margin-bottom: 10px; line-height: 1.9; font-size: 16px; color: #1f2430;\">Enter the tax name, and the tax value as a percentage.<\/li>\n<li style=\"margin-bottom: 10px; line-height: 1.9; font-size: 16px; color: #1f2430;\">In Inclusive, choose Exclusive or Inclusive.<\/li>\n<li style=\"margin-bottom: 10px; line-height: 1.9; font-size: 16px; color: #1f2430;\">Click Save.<\/li>\n<\/ol>\n<p style=\"margin: 0 0 14px; line-height: 1.9; font-size: 16px; color: #1f2430;\">To apply a tax automatically to new products, set Default Tax 1 and Default Tax 2 in the System Defaults in the sales settings. You can also specify Tax 1 and Tax 2 for each product, and the purchase tax, from the product settings.<\/p>\n<h2 style=\"font-size: 22px; font-weight: bold; color: #111827; margin: 32px 0 14px; padding-bottom: 8px; border-bottom: 2px solid #eef0f3;\">Tax Calculation Formulas<\/h2>\n<table style=\"width: 100%; border-collapse: collapse; margin: 0 0 18px;\">\n<tbody>\n<tr>\n<th style=\"border: 1px solid #e5e7eb; padding: 10px 12px; text-align: left; background: #f6f8fb; font-weight: bold;\">Type<\/th>\n<th style=\"border: 1px solid #e5e7eb; padding: 10px 12px; text-align: left; background: #f6f8fb; font-weight: bold;\">Formula<\/th>\n<th style=\"border: 1px solid #e5e7eb; padding: 10px 12px; text-align: left; background: #f6f8fb; font-weight: bold;\">Example (15% rate)<\/th>\n<\/tr>\n<tr>\n<td style=\"border: 1px solid #e5e7eb; padding: 10px 12px; text-align: left; vertical-align: top;\">Exclusive<\/td>\n<td style=\"border: 1px solid #e5e7eb; padding: 10px 12px; text-align: left; vertical-align: top;\">Tax = net \u00d7 rate \u00f7 100, and it is added on top of the price.<\/td>\n<td style=\"border: 1px solid #e5e7eb; padding: 10px 12px; text-align: left; vertical-align: top;\">Price 100 \u2192 tax 15 \u2192 total 115<\/td>\n<\/tr>\n<tr>\n<td style=\"border: 1px solid #e5e7eb; padding: 10px 12px; text-align: left; vertical-align: top;\">Inclusive<\/td>\n<td style=\"border: 1px solid #e5e7eb; padding: 10px 12px; text-align: left; vertical-align: top;\">Tax = price \u00d7 rate \u00f7 (100 + rate), and it is part of the price.<\/td>\n<td style=\"border: 1px solid #e5e7eb; padding: 10px 12px; text-align: left; vertical-align: top;\">Price 100 \u2192 tax 13.04 \u2192 net 86.96 \u2192 total 100<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<h2 style=\"font-size: 22px; font-weight: bold; color: #111827; margin: 32px 0 14px; padding-bottom: 8px; border-bottom: 2px solid #eef0f3;\">Calculating Two Taxes on the Same Line<\/h2>\n<ul style=\"margin: 0 0 16px; padding-left: 26px;\">\n<li style=\"margin-bottom: 10px; line-height: 1.9; font-size: 16px; color: #1f2430;\">The two taxes are calculated on the same net: the second tax isn&#8217;t calculated on the price after the first tax, meaning there is no tax on tax.<\/li>\n<li style=\"margin-bottom: 10px; line-height: 1.9; font-size: 16px; color: #1f2430;\">If both taxes are inclusive, their rates are added together to extract the net from the price.<\/li>\n<li style=\"margin-bottom: 10px; line-height: 1.9; font-size: 16px; color: #1f2430;\">The same tax cannot be chosen in both Tax 1 and Tax 2.<\/li>\n<li style=\"margin-bottom: 10px; line-height: 1.9; font-size: 16px; color: #1f2430;\">The second tax column appears in the invoice when you have two or more taxes.<\/li>\n<\/ul>\n<table style=\"width: 100%; border-collapse: collapse; margin: 0 0 18px;\">\n<tbody>\n<tr>\n<th style=\"border: 1px solid #e5e7eb; padding: 10px 12px; text-align: left; background: #f6f8fb; font-weight: bold;\">Case<\/th>\n<th style=\"border: 1px solid #e5e7eb; padding: 10px 12px; text-align: left; background: #f6f8fb; font-weight: bold;\">Price<\/th>\n<th style=\"border: 1px solid #e5e7eb; padding: 10px 12px; text-align: left; background: #f6f8fb; font-weight: bold;\">Net<\/th>\n<th style=\"border: 1px solid #e5e7eb; padding: 10px 12px; text-align: left; background: #f6f8fb; font-weight: bold;\">Tax 1<\/th>\n<th style=\"border: 1px solid #e5e7eb; padding: 10px 12px; text-align: left; background: #f6f8fb; font-weight: bold;\">Tax 2<\/th>\n<th style=\"border: 1px solid #e5e7eb; padding: 10px 12px; text-align: left; background: #f6f8fb; font-weight: bold;\">Total<\/th>\n<\/tr>\n<tr>\n<td style=\"border: 1px solid #e5e7eb; padding: 10px 12px; text-align: left; vertical-align: top;\">Two exclusive taxes (10% and 5%)<\/td>\n<td style=\"border: 1px solid #e5e7eb; padding: 10px 12px; text-align: left; vertical-align: top;\">100<\/td>\n<td style=\"border: 1px solid #e5e7eb; padding: 10px 12px; text-align: left; vertical-align: top;\">100<\/td>\n<td style=\"border: 1px solid #e5e7eb; padding: 10px 12px; text-align: left; vertical-align: top;\">10<\/td>\n<td style=\"border: 1px solid #e5e7eb; padding: 10px 12px; text-align: left; vertical-align: top;\">5<\/td>\n<td style=\"border: 1px solid #e5e7eb; padding: 10px 12px; text-align: left; vertical-align: top;\">115<\/td>\n<\/tr>\n<tr>\n<td style=\"border: 1px solid #e5e7eb; padding: 10px 12px; text-align: left; vertical-align: top;\">Two inclusive taxes (10% and 5%)<\/td>\n<td style=\"border: 1px solid #e5e7eb; padding: 10px 12px; text-align: left; vertical-align: top;\">100<\/td>\n<td style=\"border: 1px solid #e5e7eb; padding: 10px 12px; text-align: left; vertical-align: top;\">86.96<\/td>\n<td style=\"border: 1px solid #e5e7eb; padding: 10px 12px; text-align: left; vertical-align: top;\">8.70<\/td>\n<td style=\"border: 1px solid #e5e7eb; padding: 10px 12px; text-align: left; vertical-align: top;\">4.35<\/td>\n<td style=\"border: 1px solid #e5e7eb; padding: 10px 12px; text-align: left; vertical-align: top;\">100<\/td>\n<\/tr>\n<tr>\n<td style=\"border: 1px solid #e5e7eb; padding: 10px 12px; text-align: left; vertical-align: top;\">The first inclusive 10% and the second exclusive 5%<\/td>\n<td style=\"border: 1px solid #e5e7eb; padding: 10px 12px; text-align: left; vertical-align: top;\">100<\/td>\n<td style=\"border: 1px solid #e5e7eb; padding: 10px 12px; text-align: left; vertical-align: top;\">90.91<\/td>\n<td style=\"border: 1px solid #e5e7eb; padding: 10px 12px; text-align: left; vertical-align: top;\">9.09<\/td>\n<td style=\"border: 1px solid #e5e7eb; padding: 10px 12px; text-align: left; vertical-align: top;\">4.55<\/td>\n<td style=\"border: 1px solid #e5e7eb; padding: 10px 12px; text-align: left; vertical-align: top;\">104.55<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p style=\"margin: 0 0 14px; line-height: 1.9; font-size: 16px; color: #1f2430;\">An inclusive tax is part of the price, so it doesn&#8217;t change the total; an exclusive tax is added on top of it. The numbers are rounded to the nearest two decimal places.<\/p>\n<div style=\"display: flex; gap: 10px; background: #f6f8fb; border-left: 4px solid #1a56db; border-radius: 6px; padding: 14px 16px; margin: 0 0 18px;\">\n<p><span style=\"flex: 0 0 auto; font-size: 18px; line-height: 1.6;\">\ud83d\udec8<\/span><\/p>\n<p style=\"margin: 0; line-height: 1.9; font-size: 16px; color: #1f2430;\"><strong style=\"color: #111827;\">Note:<\/strong> if the second tax were calculated on the price after the first, the total would be 115.5; in the system the total is 115 because both taxes are on the same net.<\/p>\n<\/div>\n<h2 style=\"font-size: 22px; font-weight: bold; color: #111827; margin: 32px 0 14px; padding-bottom: 8px; border-bottom: 2px solid #eef0f3;\">The Order of Discount and Tax<\/h2>\n<ol style=\"margin: 0 0 16px; padding-left: 26px;\">\n<li style=\"margin-bottom: 10px; line-height: 1.9; font-size: 16px; color: #1f2430;\">The line total is calculated: unit price \u00d7 quantity.<\/li>\n<li style=\"margin-bottom: 10px; line-height: 1.9; font-size: 16px; color: #1f2430;\">The line discount is subtracted (a percentage or an amount).<\/li>\n<li style=\"margin-bottom: 10px; line-height: 1.9; font-size: 16px; color: #1f2430;\">The line&#8217;s share of the invoice&#8217;s total discount is subtracted. If the discount is a fixed amount, it is distributed across the lines in proportion to each line&#8217;s value.<\/li>\n<li style=\"margin-bottom: 10px; line-height: 1.9; font-size: 16px; color: #1f2430;\">The inclusive tax is extracted from the result, if any.<\/li>\n<li style=\"margin-bottom: 10px; line-height: 1.9; font-size: 16px; color: #1f2430;\">Taxes are calculated on the net after the discount.<\/li>\n<\/ol>\n<p style=\"margin: 0 0 14px; line-height: 1.9; font-size: 16px; color: #1f2430;\"><strong style=\"color: #111827;\">Example: a 10% discount and a 15% exclusive tax<\/strong><\/p>\n<p style=\"margin: 0 0 14px; line-height: 1.9; font-size: 16px; color: #1f2430;\">Price 100 \u2192 after the discount 90 \u2192 tax 90 \u00d7 15% = 13.5 \u2192 total 103.5.<\/p>\n<p style=\"margin: 0 0 14px; line-height: 1.9; font-size: 16px; color: #1f2430;\"><strong style=\"color: #111827;\">Example: a 10% invoice discount and a 15% inclusive tax<\/strong><\/p>\n<p style=\"margin: 0 0 14px; line-height: 1.9; font-size: 16px; color: #1f2430;\">Price 100 \u2192 after the discount 90 \u2192 inclusive tax 90 \u00d7 15 \u00f7 115 = 11.74 \u2192 net 78.26 \u2192 total 90.<\/p>\n<h2 style=\"font-size: 22px; font-weight: bold; color: #111827; margin: 32px 0 14px; padding-bottom: 8px; border-bottom: 2px solid #eef0f3;\">Shipping Tax<\/h2>\n<ul style=\"margin: 0 0 16px; padding-left: 26px;\">\n<li style=\"margin-bottom: 10px; line-height: 1.9; font-size: 16px; color: #1f2430;\">You can choose a tax for shipping expenses from the shipping details in the invoice. It is applied only if there is a shipping amount.<\/li>\n<li style=\"margin-bottom: 10px; line-height: 1.9; font-size: 16px; color: #1f2430;\">Exclusive: added on top of the shipping amount. Inclusive: extracted from the shipping amount.<\/li>\n<li style=\"margin-bottom: 10px; line-height: 1.9; font-size: 16px; color: #1f2430;\">The invoice discount isn&#8217;t applied to shipping.<\/li>\n<\/ul>\n<p style=\"margin: 0 0 14px; line-height: 1.9; font-size: 16px; color: #1f2430;\"><strong style=\"color: #111827;\">Example:<\/strong> shipping of 20 with a 15% exclusive tax \u2192 23 is added to the total. Shipping of 100 with a 15% inclusive tax \u2192 100 is added to the total, and the shipping shows as 86.96 with its tax 13.04.<\/p>\n<h2 style=\"font-size: 22px; font-weight: bold; color: #111827; margin: 32px 0 14px; padding-bottom: 8px; border-bottom: 2px solid #eef0f3;\">How the System Works<\/h2>\n<ul style=\"margin: 0 0 16px; padding-left: 26px;\">\n<li style=\"margin-bottom: 10px; line-height: 1.9; font-size: 16px; color: #1f2430;\">The tax rate and type are saved with each invoice at the time it is created; changing the tax rate later doesn&#8217;t change previous invoices. When you open an old invoice after the rate has changed, the system alerts you to the change.<\/li>\n<li style=\"margin-bottom: 10px; line-height: 1.9; font-size: 16px; color: #1f2430;\">Each tax has an account in the chart of accounts that is created automatically under Current Liabilities. Sales tax is recorded as a credit in its account, and the tax on purchases and expenses in a separate account.<\/li>\n<li style=\"margin-bottom: 10px; line-height: 1.9; font-size: 16px; color: #1f2430;\">Tax doesn&#8217;t enter the product&#8217;s cost (the average cost).<\/li>\n<li style=\"margin-bottom: 10px; line-height: 1.9; font-size: 16px; color: #1f2430;\">Taxes are tracked from the Tax Report and the Tax Return in the Accounting Reports, choosing between invoices that are Issued (Due), Fully Paid, or Partially Paid.<\/li>\n<\/ul>\n<h2 style=\"font-size: 22px; font-weight: bold; color: #111827; margin: 32px 0 14px; padding-bottom: 8px; border-bottom: 2px solid #eef0f3;\">Validation Rules<\/h2>\n<ul style=\"margin: 0 0 16px; padding-left: 26px;\">\n<li style=\"margin-bottom: 10px; line-height: 1.9; font-size: 16px; color: #1f2430;\">The tax name and its value are mandatory, and the value is a number.<\/li>\n<li style=\"margin-bottom: 10px; line-height: 1.9; font-size: 16px; color: #1f2430;\">An inclusive tax with a negative value cannot be saved. An exclusive tax can be negative (such as withholding tax).<\/li>\n<li style=\"margin-bottom: 10px; line-height: 1.9; font-size: 16px; color: #1f2430;\">A tax that is used in products, invoices, entries, or settings cannot be deleted; you can deactivate the tax instead of deleting it, so it doesn&#8217;t appear in new documents.<\/li>\n<\/ul>\n<h2 style=\"font-size: 22px; font-weight: bold; color: #111827; margin: 32px 0 14px; padding-bottom: 8px; border-bottom: 2px solid #eef0f3;\">Frequently Asked Questions<\/h2>\n<ul style=\"margin: 0 0 16px; padding-left: 26px;\">\n<li style=\"margin-bottom: 10px; line-height: 1.9; font-size: 16px; color: #1f2430;\"><strong style=\"color: #111827;\">Which should I choose, inclusive or exclusive?<\/strong> If your advertised prices include the tax, choose inclusive. If the tax is added on top of the price, choose exclusive.<\/li>\n<li style=\"margin-bottom: 10px; line-height: 1.9; font-size: 16px; color: #1f2430;\"><strong style=\"color: #111827;\">Is the second tax calculated on the first?<\/strong> No, both taxes are calculated on the same net.<\/li>\n<li style=\"margin-bottom: 10px; line-height: 1.9; font-size: 16px; color: #1f2430;\"><strong style=\"color: #111827;\">Is the discount applied before or after the tax?<\/strong> Before; the tax is calculated on the amount after the discount.<\/li>\n<li style=\"margin-bottom: 10px; line-height: 1.9; font-size: 16px; color: #1f2430;\"><strong style=\"color: #111827;\">How do I record withholding tax?<\/strong> Add an exclusive tax with a negative rate, then link it to the appropriate tax type in the e-invoicing settings if you use it.<\/li>\n<li style=\"margin-bottom: 10px; line-height: 1.9; font-size: 16px; color: #1f2430;\"><strong style=\"color: #111827;\">I changed the tax rate. Why didn&#8217;t the old invoices change?<\/strong> Because each invoice keeps the rate it was created with.<\/li>\n<li style=\"margin-bottom: 10px; line-height: 1.9; font-size: 16px; color: #1f2430;\"><strong style=\"color: #111827;\">Why can&#8217;t I delete a tax?<\/strong> Because it is in use; deactivate it instead.<\/li>\n<\/ul>\n<\/div>\n","protected":false},"author":17,"featured_media":0,"template":"","categories":[2054,2043],"tags":[14487,3873,19473,3872,19474,19470,4045,13523,19472,4862,3785,19469,19475,19471],"class_list":["post-148699","tutorial","type-tutorial","status-publish","hentry","category-tax-settings","category-settings","tag-default-tax","tag-exclusive-tax","tag-how-are-taxes-calculated","tag-inclusive-tax","tag-is-the-second-tax-calculated-on-the-first","tag-order-of-discount-and-tax","tag-shipping-tax","tag-tax-calculation","tag-tax-default","tag-tax-report","tag-tax-settings","tag-two-taxes-on-the-same-item","tag-why-cant-i-delete-a-tax","tag-withholding-tax"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v17.8 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>How Taxes Are Calculated (Inclusive \/ Exclusive \/ Two Taxes on the Same Item) - Daftra Knowledge Base<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/docs.daftra.com\/en\/tutorial\/how-taxes-are-calculated-inclusive-exclusive-two-taxes-on-the-same-item\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"How Taxes Are Calculated (Inclusive \/ Exclusive \/ Two Taxes on the Same Item) - Daftra Knowledge Base\" \/>\n<meta property=\"og:description\" content=\"The system calculates taxes at the level of each line in the invoice, and lets you apply two taxes to a single line. 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