Turn Over Reconciliation for Income Tax Purposes and for Value Added Tax (VAT) Purposes
Ideally for certain industries and activities, turnover as the basis for calculating annual income tax and turnover as the basis for calculating annual value added tax (VAT) must reconcile. This is because the data source is the same.
However, with respect to time difference caused by the difference in determining of income recognition of income for income tax purposes and time of the reporting of VAT invoice and value added tax return, it would lead to the condition that the annual turn over of income tax and the annual turn over of value added tax is not reconcile. The difference shall trigger a fiscal correction of income payable or value added tax payable. In some cases if the taxpayer can not provide data and reasons that can convince tax auditors why there are the differences, the taxpayer shall bear unnecessary tax burden.
Under Indonesian tax laws, for income tax purposes income shall be recognized at the time the invoice (billing) is recorded, whereas for value-added tax purposes the VAT Invoice and value added tax return reporting shall be made at the latest by the end next following month. This situation shall potentially lead to differences between income tax turnover and value added tax turnover.
Tips how to overcome the problem
In order to avoid or minimize problems in connection with the difference of turn over of income tax and value added tax, following tips might help full:
1) taxpayers must properly maintain all documents related to the turnover, as well as recorded with meticulous explanation of the reasons for any differences, so in case of a tax audit the taxpayers can convince tax auditors why there is a difference;
2) VAT Invoice and value added tax return made and reported in the same month with the month of income recognition.