If you are in a tax environment, you might be somewhat familiar with the term deferred tax receivable. This is because deferred tax receivable in taxation is known as deferred tax or deferred tax expense. It can be said that this term refers to the tax expense that can affect the increase or decrease of tax liabilities that need to be paid in the future.
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To have a more comprehensive understanding of the definition of deferred tax receivable in taxation, please find the explanation below.
Definition of Deferred Tax Receivable
In terms of definition, deferred tax receivable can be viewed from two perspectives: accounting as an asset account and liability (obligation to be settled/services to be performed in the future to another party).
These two contrasting perspectives, assets and liabilities, are what constitute deferred tax receivable. Therefore, let’s examine the definition of deferred tax receivable as follows:
Deferred Tax Receivable as an Asset
Deferred tax receivable is the amount of income tax that can be recovered in future periods. The recoverable income tax arises due to several factors, such as accumulated tax losses not yet offset, deductible temporary differences, and accumulated tax credits not yet utilized according to tax regulations.
With this definition, the concept of “recovery in the future” emerges. In other words, deferred tax receivable represents the amount of recoverable income tax in future periods resulting from deductible temporary differences and remaining loss carry forwards.
Deferred Tax Receivable as a Liability
Next, there is deferred tax receivable as a liability. This definition represents the amount of income tax payable in future periods arising from taxable temporary differences. Additionally, this definition also introduces the concept of “payable in future periods.”
Simply put, deferred tax receivable can be defined as the tax arising from differences between tax regulations, specifically fiscal rules, and financial accounting standards, which are commercial rules.
These differences result in recognized revenues or expenses differing in each period. However, in the end, the total amount recognized between fiscal and commercial aspects will be the same. This difference is commonly referred to as a temporary difference.
Accounting Treatment of Deferred Taxes
If we refer to klikpajak, the accounting treatment of deferred taxes is regulated in PSAK (Indonesian Financial Accounting Standards) No. 46. It covers “Income Tax Accounting” officially issued by the Indonesian Institute of Accountants (IAI).
The accounting treatment of deferred taxes based on PSAK No. 46 consists of four activities, as explained below.
Deferred taxes can be recognized as assets on the financial statements. This means that companies preparing financial statements can recognize the carrying amount as assets or settle the carrying amount as liabilities.
The temporary differences that will increase future tax liabilities are recognized as obligations. Consequently, deferred tax liabilities must be recognized by the company as part of its deferred tax expense.
Next is the measurement of deferred taxes. It is calculated using the applicable tax rates in future periods, as stated in PSAK No. 46 paragraph 30.
The measurement of deferred tax liabilities and assets uses the tax rate that will be applied in the period when the asset is realized or the liability is settled. This is also done using the substantively applicable tax rate on the balance sheet date.
Technically, the recognition of deferred tax liabilities and assets is based on deductible fiscal losses. The temporary (timing) differences between commercial financial statements and tax-deductible fiscal financial statements are multiplied by the applicable tax rate.
Deferred tax assets and liabilities must be presented separately from current tax assets or liabilities. They should be classified as non-current (long-term) items on the balance sheet.
On the other hand, the deferred tax expense or benefit should be presented separately from current tax expense in the company’s income statement. Deferred tax assets and liabilities should be presented separately from other assets and liabilities on the balance sheet.
Deferred tax assets and liabilities need to be distinguished from current tax assets and liabilities. If a company’s financial statements present current assets and liabilities separately from non-current assets and liabilities, the deferred tax assets should not be classified as current assets.
The disclosure of deferred taxes is also regulated in PSAK No. 46 paragraphs 56-63. In paragraph 56, it explains several aspects related to deferred taxes that must be disclosed in the notes to the financial statements. The contents include:
- The current and deferred taxes originating from transactions directly charged or credited to the income statement.
- An explanation of the relationship between tax expense (income) and accounting profit in one or two forms. First, reconciliation between tax expense and the product of accounting profit and the applicable tax rate by disclosing the basis of calculating the applicable tax rate. Second, reconciliation between the average effective tax rate and the applicable tax rate by disclosing the basis of calculating the applicable tax rate.
- Changes in the applicable tax rate and a comparison with the applicable tax rate in the previous accounting period.
- The amount of deductible temporary differences and remaining tax loss carryforwards to future years, recognized as deferred tax assets on the balance sheet.
Working on Deferred Tax Assets
Deferred tax assets are reported as assets in the financial statements. This is because deferred tax assets provide future benefits to the company. Typically, deferred tax assets arise when a company has overpaid taxes or paid in excess.
The company pays more taxes than the amount reported in the income statement. Additionally, tax authorities may recognize excess tax payments compared to the accounting standards used by the company.
Another reason for the emergence of deferred tax assets is when a company makes prepayments or pays taxes before the due date. Deferred tax assets arise from various transactions, such as uncollectible receivables, warranties, leases, inventories, and net operating losses.
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That concludes the definition of deferred taxes in taxation. We hope this information is beneficial to you.