Taxable, Tax-Exempt, and Mixed Tax: What's the difference?
How to set tax types correctly when integrating PG payments.
How does tax work in payment amounts?
"What value should I put in the taxTypeCd parameter?"
Tax-related parameters come up during payment integration. In most cases the default handles it automatically — but if you sell tax-exempt goods, or sell a mix of taxable and tax-exempt items in a single transaction, you need to set these values correctly.
This article covers the three tax types and how to configure them when integrating with Hecto Financial's PG.
The three tax types
PG payments use three distinct tax classifications.
| Type | taxTypeCd | Description |
|---|---|---|
| Taxable | N | Standard goods and services with 10% VAT included |
| Tax-exempt | Y | Goods and services exempt from VAT |
| Mixed tax | G | A single transaction containing both taxable and tax-exempt items |
Taxable (taxTypeCd = N)
The most common case. Most goods and services include 10% VAT.
Characteristics
- The payment amount already includes 10% VAT
- No additional tax parameters are required
- This is typically the default setting
Example calculation
For a 10,000 KRW taxable item:
| Item | Amount | Calculation |
|---|---|---|
| Payment amount | 10,000 KRW | - |
| Supply price | 9,091 KRW | 10,000 ÷ 1.1 |
| VAT | 909 KRW | 9,091 × 0.1 |
VAT formula
Tax-exempt (taxTypeCd = Y)
These are goods and services exempt from VAT. Only categories defined by law qualify as tax-exempt.
Common tax-exempt categories
- Agricultural and marine products: Unprocessed produce and seafood
- Medical and education: Medical services, educational services
- Books and periodicals: Books, newspapers, magazines
- Financial and insurance: Financial services, insurance premiums
Characteristics
- The full payment amount is treated as tax-exempt
- Since there's no VAT, payment amount = supply price
- Cash receipts are also issued as tax-exempt
Example calculation
For a 10,000 KRW tax-exempt item:
| Item | Amount |
|---|---|
| Payment amount | 10,000 KRW |
| Supply price | 10,000 KRW |
| VAT | 0 KRW |
Tax-exempt setting warning
Mixed tax (taxTypeCd = G)
A single payment that includes both taxable and tax-exempt items — for example, buying a book (tax-exempt) and stationery (taxable) together from an online bookstore.
Characteristics
- Set
taxTypeCdtoG taxAmt,vatAmt, andtaxFreeAmtare required- The sum of those amounts must equal the total payment amount
Required parameters
| Parameter | Description | Calculation |
|---|---|---|
taxAmt | Taxable amount (supply price) | Taxable item amount ÷ 1.1 |
vatAmt | VAT amount | Taxable item amount − taxAmt |
taxFreeAmt | Tax-exempt amount | Full tax-exempt item amount |
Example calculation
Book 8,000 KRW (tax-exempt) + stationery 11,000 KRW (taxable) = 19,000 KRW total:
| Item | Amount | Calculation |
|---|---|---|
| Total payment amount | 19,000 KRW | - |
| taxFreeAmt (tax-exempt) | 8,000 KRW | Book amount |
| taxAmt (supply price) | 10,000 KRW | 11,000 ÷ 1.1 |
| vatAmt (VAT) | 1,000 KRW | 11,000 − 10,000 |
Validation: taxFreeAmt + taxAmt + vatAmt = 8,000 + 10,000 + 1,000 = 19,000 KRW
Amount mismatch error
Service charge (svcAmt)
Restaurants, hotels, and similar businesses sometimes charge a service charge (service charge / gratuity). Service charges are not subject to VAT and must be tracked separately.
Characteristics
- Service charges are tax-exempt
- Cash receipts break out the service charge separately
- Pass the amount in the
svcAmtparameter
Example with a service charge
Food 50,000 KRW (taxable) + service charge 5,000 KRW = 55,000 KRW total:
| Item | Amount | Calculation |
|---|---|---|
| Total payment amount (trdAmt) | 55,000 KRW | - |
| Food | 50,000 KRW | Taxable |
| Supply price | 45,455 KRW | 50,000 ÷ 1.1 |
| VAT | 4,545 KRW | 50,000 − 45,455 |
| Service charge (svcAmt) | 5,000 KRW | Tax-exempt |
Service charge with mixed tax
Service charge + mixed tax example
Food 30,000 KRW (taxable) + water 2,000 KRW (tax-exempt) + service charge 3,000 KRW = 35,000 KRW total:
| Item | Amount | Parameter |
|---|---|---|
| Total payment amount | 35,000 KRW | trdAmt |
| Supply price (taxable) | 27,273 KRW | taxAmt (30,000 ÷ 1.1) |
| VAT | 2,727 KRW | vatAmt (30,000 − 27,273) |
| Tax-exempt amount | 2,000 KRW | taxFreeAmt |
| Service charge | 3,000 KRW | svcAmt |
Validation: taxAmt + vatAmt + taxFreeAmt + svcAmt = 27,273 + 2,727 + 2,000 + 3,000 = 35,000 KRW
FAQ
Q. What happens if I don't set taxTypeCd?
The merchant's default setting applies. Most merchants default to taxable (N). Confirm the default with your account manager.
Q. What if the amounts don't add up in a mixed tax transaction?
The payment will fail. taxAmt + vatAmt + taxFreeAmt must exactly match the total payment amount (trdAmt). Pay attention to rounding — every won counts.
Q. I only sell tax-exempt items. Do I have to set Y every time?
You can change your merchant default to tax-exempt. Ask your account manager to update the default setting for you.
Q. Are cash receipts issued differently based on tax type?
Yes. Taxable transactions generate a cash receipt with VAT included; tax-exempt transactions generate one without VAT. Mixed-tax transactions break out each portion separately on the cash receipt.
Q. What kind of businesses use the service charge field?
Primarily restaurants, hotels, and accommodation businesses. Since service charges are not subject to VAT, they must be passed in the svcAmt parameter separately to ensure accurate tax calculations.
Summary
| Scenario | taxTypeCd | Required parameters |
|---|---|---|
| Standard taxable goods | N | trdAmt |
| Tax-exempt goods (books, produce, etc.) | Y | trdAmt |
| Mixed taxable + tax-exempt | G | trdAmt, taxAmt, vatAmt, taxFreeAmt |
| Includes service charge | N or G | Above parameters + svcAmt |
Setting the right tax type ensures cash receipts are issued correctly and tax reporting stays accurate. Take extra care with amount calculations for mixed-tax transactions, and always verify tax-exempt eligibility with a tax professional.
Need technical support?
Code Samples
HectoFinancial GitHub