DIFFERENCES BETWEEN TAXABLE INCOME AND BUSINESS INCOME (With special reference to Indonesia case)
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Date
2012-02-21
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Accounting Research and Education Conference 2012 (AREC 2012), Faculty of Accounting, Universtiti Teknologi MARA
Abstract
The primary causes of differences between financial statement for tax purposes and that for financial reporting, are the differing objectives of the Income Tax Law and Standar Akuntansi Keuangan Indonesia (Generally Accepted Accounting Principles). Tax objectives are providing revenue for the operation of government, and on occasion it may used to regulate the economy, or achieve other social objectives and little concerned with the best matching of revenues and expenses or any of the other specific external accounting objectives
The Income Tax Return is one kind of accounting report and the net profit (or loss) shown in the taxpayer’s account is not necessarily the net profit (or loss) for tax purposes. There are some of the cases where discrepancies may exist between the tax and accounting profit and loss figures, are caused directly by specific requirements in the tax law. Other differences arise because of choices which the taxpayer can make, that could be avoiding the income tax, such as profit shifting. The use of cash basis may cause a confusion in the income calculation, that is the amount of income can be adjusted every year by arranging cash income and expenses. For that reason , the calculation of income tax using the cash basis should consider using the mixed (hybrid) system
Where are discrepancy occurs, a statement reconciling the net profit or loss for accounting purposes with the taxable income or loss should be made for tax purposes. Such a statement is required at the time filing the income tax return
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Keywords
discrepancy, reconciliation, income tax law