Accounting for Tax

Sales Taxes Payable  

Sales taxes payable are current liabilities resulting from products and services sold to customers. 

Assume the Nicholas Corporation sells merchandise on account to its customers on November 3. The merchandise has a $1,000 sales price and the state in which the company is doing business has a 5% sales tax.

 

Total Resources	=	Sources of Borrowed Resources	+	Sources of Owner Invested Resources	+	Sources of Management Generated Resources
Assets	=	Liabilities	+	Stockholders' Equity
+ $1,050 accounts receivable	=	+ $50 sales taxes payable			+	+ $1,000 sales

This $50 is a result of the company acting as a revenue collection agency for the government.

 

Date	Description	Post. Ref.	Debits	Credits
Nov. 3	Accounts Receivable		1,050
	Sales Taxes Payable			50
	Sales			1,000
	Sales on account

Companies must pay the sales taxes by the appropriate date or be subject to penalties. For example, assume the state in which the Nicholas Corporation operates requires sales taxes to be paid by the 10^th day of the month following the sales. Assume also the Nicholas Corporation charged its customers a total of $16,000 for sales taxes in November. 

 

Total Resources	=	Sources of Borrowed Resources	+	Sources of Owner Invested Resources	+	Sources of Management Generated Resources
Assets	=	Liabilities	+	Stockholders' Equity
- $16,000 cash	=	- $16,000 sales taxes payable

The sales taxes are not an expense to the company. They are a cost to the customer, not to the company.

 

Date	Description	Post. Ref.	Debits	Credits
Dec. 8	Sales Taxes Payable		16,000
	Cash			16,000
	Sales taxes payment

 

 

Income Taxes Payable  

Assume the Nicholas Corporation uses accelerated depreciation for tax purposes but straight-line depreciation in its accounting records. As a result, the company calculates income taxes expense of $21,000 in its November accounting records. Using its knowledge of tax rules, the company calculates it will have to pay only $20,000 in income taxes in the next 12 months, while the other $1,000 will have to be paid sometime later.

 

Total Resources	=	Sources of Borrowed Resources	+	Sources of Owner Invested Resources	+	Sources of Management Generated Resources
Assets	=	Liabilities	+	Stockholders' Equity
		+ $20,000 income taxes payable + $1,000 deferred income taxes payable			+	- $21,000 income taxes expense

The company's resources (assets) do not change in November because the company does not pay the taxes until the date specified by the government. The company's liabilities increase because $21,000 is owed to the government. The $20,000 due to be paid within the next 12 months is a current liability while the $1,000 long-term liability is for payment due after 12 months. The company's stockholders' equity decreased by the full $21,000, the company's cost of governmental service used up by management in November.

 

Date	Description	Post. Ref.	Debits	Credits
Nov. 30	Income Taxes Expense		21,000
	Income Taxes Payable			20,000
	Deferred Income Taxes Payable			1,000
	November income taxes

The federal and state governments have payment schedules for companies to follow when paying income taxes. Companies must pay the income taxes by the appropriate date or be subject to penalties. For example, assume the Nicholas Corporation must pay its November taxes by December 15.

 

Total Resources	=	Sources of Borrowed Resources	+	Sources of Owner Invested Resources	+	Sources of Management Generated Resources
Assets	=	Liabilities	+	Stockholders' Equity
- $20,000 cash	=	- $20,000 income taxes payable

The payment of income taxes reduced the company's resources (assets) and sources of resources (liabilities). As a result of paying income taxes, the company has $20,000 less cash but also owes the government $20,000 less. Stockholders' equity was not affected by the income taxes payment because additional resources were not used up by management, but were, in effect, paid to a creditor.

 

Date	Description	Post. Ref.	Debits	Credits
Dec. 13	Income Taxes Payable		20,000
	Cash			20,000
	Income taxes payment

Tax Payable In Indonesia

NPWP (Nomor Pendaftaran Wajib Pajak) - The Tax Identification Number

The Indonesian tax office (Direktorat Jenderal Pajak) requires all resident individuals in Indonesia to have their own personal tax numbers, Nomor Pendaftaran Wajib Pajak or NPWP. This regulation includes expatriates. The government defines an individual taxpayer, who is required to register for NPWP and file income tax returns, as:

• Employed individuals who earn income in excess of the non-taxable income,
• Employed individuals who receive income outside of their main salary,
• Individual taxpayers who receive income from trade/business activities, self-employment or exercise of profession;
• Individual taxpayers who receive income from capital; and
• Foreigners who reside or present in Indonesia for more that 183 days within a single period of 12 months or who are present in Indonesia and have the intention to live in Indonesia. This 12 month period is based on today going back 12 months. It is not a calendar year. (The “intention” to live in Indonesia is seen by such actions as applying for a work permit, owning or renting a house for an extended period, and bringing family members to Indonesia.) Please be advised that, according to the law, those who must pay Indonesian income taxes if they've been here the 183 days in a calendar year, includes, those expats here on KITAS, KITAP, business visa or social/visit visas!
• If you stay less than 183 days in a year, then you may not be obligated to pay Indonesian income tax (only taxes from your home country).. You must prove it by showing your visa stamp and fill out FORM 1770 Individual and Monthly SSP (Surat Setoran Pajak). Of course you must have an income tax number first to complete this form.
• Dependent spouses are included in the husband's tax number and do not have to have a separate number.

Tax Rates for Resident Individual Taxpayers

Taxable Income	Rupiah Rate
Rp 1-50 million	5%
portion of income between Rp 50-250 million	15%
portion of income between Rp 250 million-500 million	25%
portion over Rp 500 million	30%

An extra 20% is levied on people who do not have a tax number (NPWP) on top of progressive income tax rates above. Deductions for an individual are Rp. 2,880,000, wife 2,880,000 and up to three children Rp. 1,440,000. Position Expense (Biaya Jabatan) is a deduction with a maximum 5% from gross income or a maximum of Rp 1,296,000.

If your company pays for house rental, car, etc. then it could be considered your income, or not. It depends on how the company will treat the expense. It may go to your income tax report as an income, or may go to the company income tax report as an expense. There are no exemptions for personal house rental, car, etc. Insurance premiums paid by the company are seen as additional income.

 

Consequences of Tax Registration

Many expats are used to being taxed on worldwide income but the Indonesia system is far broader than first meets the eye. As a registered tax person (body) you become liable for the full range and consequences of the system:

• You will be required to do an annual return on your servants and drivers that are your personal employees and not on the company payroll.
• When you rent a bus for your group's tour you will withhold tax from the bus company.
• When you receive an advance from your company to rent a house/apartment you will be required to withhold tax from the owner.
• You will pay the appropriate amount of tax via the banking system to the tax office and give proof to the person/company that you withheld from.
• You will do monthly reports to the tax office concerning this.
• You will make monthly payments on your own extra income and make an annual return.
• By virtue of what you do outside employment or as self employed, you may also be liable for registration for PPN (VAT/GST).
• Understand too that once the tax office has your personal residence and employment information, individuals from the tax office may choose to approach you on an individual, personal basis for various reasons. We suggest you refer them to your employer's HR department whenever possible.

Tax rates

Sample tax calculation

This calculation assumes a married taxpayer resident in Indonesia with two children whose three-year assignment begins 1 January 2012 and ends 31 December 2014. The taxpayer’s base salary is USD100,000 and the calculation covers three years.

	2012 USD	2013 USD	2014 USD
Salary	100,000	100,000	100,000
Bonus	20,000	20,000	20,000
Cost-of-living allowance	10,000	10,000	10,000
Housing allowance	12,000	12,000	12,000
Company car	6,000	6,000	6,000
Moving expense reimbursement	20,000	0	20,000
Home leave	0	5,000	0
Education allowance	3,000	3,000	3,000
Interest income from non-local sources	6,000	6,000	6,000

Exchange rate used for calculation: USD1.00 = IDR9,500.00.


Calculation of taxable income

Year Ended	2012 IDR	2013 IDR	2014 IDR
Days in Indonesia during year	366	365	365
Earned income subject to income tax
Salary	950,000,000	950,000,000	950,000,000
Bonus	190,000,000	190,000,000	190,000,000
Cost-of-living allowance	95,000,000	95,000,000	95,000,000
Net housing allowance	114,000,000	114,000,000	114,000,000
Company car	0	0	0
Moving expense reimbursement	190,000,000	0	0*
Home leave	0	47,500,000	0
Education allowance	28,500,000	28,500,000	28,500,000
Total earned income	1,567,500,000	1,425,000,000	1,377,500,000
Other income (interest)	57,000,000	57,000,000	57,000,000
Total income	1,624,500,000	1,482,000,000	1,434,500,000
Deductions:	25,800,000	36,375,000	36,375,000
Total taxable income	1,598,700,000	1,445,625,000	1,398,125,000

* Assume received after leaving Indonesia.

Calculation of tax liability

	2012 IDR	2013 IDR	2014 IDR
Taxable income as above	1,598,700,000	1,445,625,000	1,398,125,000
Indonesian tax thereon	424,610,000	378,687,500	364,437,500
Less:
Domestic tax rebates (dependent spouse rebate)	0	0	0
Foreign tax credits	0	0	0
Total Indonesian tax	424,610,000	378,687,500	364,437,500

Exchange rate used for calculation: USD1.00 = IDR9,500.00.

Value Added Tax (VAT)

 

VAT at the general rate of 10% is imposed on importers, manufacturers, wholesalers and retailers and on the provision of most services. While the VAT laws permit amendments of the rates for individual items, currently the products with a rate other than 10% are cigarettes and used cars. 

Services such as package deliveries and travel agents are taxed at 1%, while factoring is imposed at 5% on the fees received. Exports of taxable goods are effectively excluded from VAT by being subject to the tax at a nil rate.

Under VAT Law Number 42 Year 2009, which took effect from 1 April 2010, the export of services is subject to 0% VAT. However the Ministry of Finance (MoF) Regulation further defines that the zero-rated VAT is only applicable to the following services:

1.Sub-contracting services with certain requirements:

-The buyer or recipient of taxable service is outside the Customs area and is a Non-Resident Taxpayer and does not have a Permanent Establishment as specified in Income Tax Law

-Specification and material are provided by the buyer or the recipient of the taxable service

-Materials are defined as raw materials, work in process and/or supporting material to be further processed into finished taxable goods

-Ownership of finished goods is in the hand of the buyer or the recipient of the taxable service

-The sub-contracting entrepreneur delivers the products by request from the buyer or the recipient of the taxable service to outside the Customs area.

2.Construction services including construction planning, construction work and construction supervision located outside the Customs area.

3.Repair and maintenance services which are attached to services of movable goods utilised outside the customs area.

VAT is payable by the end of the following month of the relevant transaction prior to the submission deadline of the monthly tax return. In the case of certain services rendered by non-residents of Indonesia such as the use of intangible taxable goods and/or offshore services, the recipient of these services has an obligation, by way of self assessment, to pay and report import VAT by the 15th of the following month.

Goods excluded from VAT:

• Basic necessities

• Mining taken from natural resources

• Food served in hotels and restaurants, including food and drinks provided by catering services

• Money, gold and securities.

Services excluded from VAT:

• Medical, social and religious services

• Postal and account transfer services

• Banking, insurance and non-banking financial leasing

• Educational services

• Finance leasing

• Art and entertainment services

• Radio and television broadcasting services, other than advertisements

• Public transportation services, i.e. land, sea and domestic air transportation (effective 1 April 2010)

• Manpower and recruitment services

• Hotel and boarding house services

• Services provided by the government relating to public administration and formality requirements

• Parking services (effective 1 April 2010)

• Public telephone (by coin) services (effective 1 April 2010)

• Food and catering services (effective 1 April 2010

Resources for more information:

Living in Indonesia , A Site for Expatriates

KPMG, cutting through complexity

KnowYourCountry

http://faculty.uml.edu/ccarter/Chapter10Part2.htm , Sales Taxes Payable and Income Taxes Payable