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Category: Tax & Accounting, Compliance Services
Written by Riza Zahrotun Nisa on 27/05/2022
The author’s views are entirely their own and may not always reflect the views of Putranto Alliance.

Tax is the obligation of all citizens as taxpayers. Tax law is regulated by the government as the holder of the authority to regulate rights and responsibilities. Some taxes are charged directly to taxpayers, those that are charged to tax objects. Tax reporting in Indonesia is known as the Self-Assessment Method system. Although the Telang Income Tax is deducted directly, taxpayers must still report their taxes independently.

For individuals, tax burden is influenced by income. As for the company or entity, the tax burden is influenced by profits from the relevant company. The profit of a company describes financial performance in a certain period. The company compiles financial statements in an accounting cycle to find out financial position, financial performance, and cash flow in that period.

With Tax and Accounting Service, we can help you with journal entries and bookkeeping for your transactions. We also can help you prepare monthly tax reports, tax calculations and tax payments.

Tax in Indonesia

Indonesian Tax Law & Regulations

According to Law No. 28 of 2007 concerning General Provisions and Taxation Procedures, Tax is a mandatory contribution to the state owed by individuals or entities that are forced based on the law, by not getting direct rewards and used for the state needs for the maximum people’s prosperity.

Tax law is a set of rules that define taxpayers’ rights and responsibilities, as well as their relationships with the government or tax collectors. The government will be represented in this case by the Direktorat Jenderal Pajak (DJP), which has the authority to regulate and manage tax matters. Tax law functions as a reference in creating a tax collection system based on justice and efficiency and is regulated as clearly as possible in the law on the tax law.

There are two kinds of tax laws, formal tax law, and material tax law:

Formal Tax Law

Formal tax law contains several provisions in realizing material tax law into a reality. The norms contained in this law, namely:
- Procedures for administering or procedures related to the determination of a tax payable.
- The right of the tax authorities or the government as the tax administrator to carry out supervision of taxpayers relating to circumstances, actions, and events that give rise to tax debts.
- The obligation for taxpayers to be able to maintain books or records, as well as the rights of taxpayers, for example, is to file objections or appeals related to taxation.
The formal tax law regulates the implementation mechanism and procedures related to taxation. An example of this formal tax law is the Tax Procedure.

Material Tax Law

Material tax law contains norms that explain the circumstances, actions, legal events subject to tax (tax objects), figures who are taxed (tax subjects), the amount of tax imposed (tax rates), and everything that can cause or eliminate debts. taxes, as well as the legal relationship between taxpayers and the government. Examples of material tax laws are Income Tax (PPh) and Value Added Tax (VAT).

Examples are the types of formal and material tax laws, the Income Tax (PPh) and Value Added Tax (VAT/ PPN), separate formal and material tax laws.

For the formal tax laws of the two types of taxes (Income Tax and Value Added Tax) refer to Law No. 6 of 1983 concerning General Provisions and Tax Procedures which has been amended until the latest amendment to Law No. 16 of 2009. Thus, the rights and obligations of the Taxpayer relating to Income Tax (PPh) and Value Added Tax (PPN) can be found in the KUP (Ketentuan Umum dan Tata Cara Perpajakan).

As for the material tax law on the type of Income Tax (PPh), it is separate from the material tax law on the type of Value Added Tax (VAT). For material tax law on Income Tax (PPh), it refers to Law No. 7 of 1983 which has been amended until the last time in Law No. 36 of 2008. As for material tax law on Value Added Tax (VAT/ PPN), it refers to Law No. 8 of 1983 which has been amended until the last time in Law N0.42 of 2009.

In Indonesia, taxes are categorized based on three things. First, based on the group or the way of collection (direct tax and indirect tax). Second, based on its nature (subjective tax and objective tax). Third, based on the Collection Institution (Central Tax and Regional Tax).

Group Based
- Direct Tax
  
  Taxes are imposed on taxpayers periodically both individuals and business entities.
  Examples: Income Tax and Land and Building Tax
- Indirect Tax
  
  Taxes are given by taxpayers when carrying out certain events or actions.
  Examples: Sales Tax on Luxury Goods
Nature Based
- Subjective Tax
  
  Subjective Tax is a tax that stems from the subject. For this subjective tax, the amount of tax owed is influenced by the personal circumstances of the relevant Taxpayer (subject).
  Example: Income Tax (PPh)
- Objective Tax
  
  An objective Tax is a tax that pays attention to the value of a tax object.
  Example: Value Added Tax (VAT)
Institutional Based
- Central Tax
  
  Central tax is a tax managed by the central government represented by the Direktorat Jenderal Pajak (DJP) Kementerian Keuangan.
  Examples: Income Tax (PPh), Value Added Tax (VAT/ PPN), Luxury Goods Sales Tax (PPnBM), Land and Building Tax (PBB), and Stamp Duty (BM)
- Regional Tax
  
  Regional Tax is a tax that is collected by the Regional Government at the Provincial and Regency or City levels which is administered by the Regional Revenue Service or Agency.
  Examples: Motor Vehicle Tax, Hotel Tax, Restaurant Tax, Entertainment Tax, Advertising Tax, etc.

Tax Reporting in Indonesia

The tax collection system with the Self Assessment Method in Indonesia has succeeded in moving the responsibility of calculating, paying and reporting taxes by the taxpayer himself. Through this system, although the implementation of tax payments has been carried out through the mechanism of cutting by other parties, for example by the employer, the taxpayers are still obliged to submit an annual notification letter (SPT Tahunan). Therefore, even though the Income Tax (PPH) has been deducted by the employer, workers are required to fill and submit the SPT Tahunan to the Tax Office.

Tax Penalties

All citizens, except those who are exempted by laws and regulations, are required to pay taxes. The state imposes penalties on people who do not pay their taxes because of its compulsory nature. The goal is for the taxpayer to become more compliant with his or her tax duties.

Accounting in Indonesia

Accounting Cycle in Indonesia

The accounting cycle is the process of making financial statements in a company where this activity includes all transactions from the operational activities of a business or company so that it can see the condition of the company getting a profit or loss in the company’s economic growth.

Identifying and recording transactions

The first step in the accounting cycle is to identify transactions. Not all transactions can be recorded. Recorded accounting transactions are transactions that have a direct impact on changes in the company's financial condition and are assessed objectively.

In addition, the transaction to be recorded must also have evidence, if there is no evidence then the transaction cannot be recorded and reported in the financial statements. Proof of transactions is usually in the form of receipts, notes, invoices, cash-out receipts, memos on the write-off of accounts receivable, and so on. Of course, the evidence must be valid and verified.

Transaction Analysis

After the identification step, the accountant must then analyze the transaction regarding its effect on the company's financial condition. The accounting record system in the company always uses a double-entry system. That is, every accounting transaction that occurs will have an effect on the financial position in debits and credits and must be in the same amount.

Recording transactions in journals

After accounting performs transaction analysis, the next step is to record all transactions in a financial journal. In accounting, a journal is defined as a chronological record for a period of transactions that occur. The process of entering this information is called journalizing. In the journaling process, each transaction is divided into two parts: Debit and Credit. This recording can be done in a General Journal. Recording must be done sequentially and carefully, without missing any transactions.

Posting to the general ledger

The next step in the accounting flow or accounting cycle sequence is posting transactions that have been recorded in the journal into the accounting ledger. The general ledger is a collection of accounting accounts, each of which is used to record information about certain assets.

In general, companies have an organized list of ledger accounts called a chart of accounts. Each account in the ledger is assigned a certain code number. The aim is to facilitate the identification process in the journal. In addition, accountants will also find it easier to re-check or see references related to transactions that occur if they have been recorded in the general ledger. .

Generating unadjusted trial balance report

The accountant compiles a unadjusted trial balance consisting of a list of balances in each ledger account. The balance contained in the ledger is put together and the amount must be the same. The unadjusted trial balance can be prepared once the journal item is posted to the ledger. If there are cases in which transactions have not been recorded and faults in the trial balance have been identified, they will be recorded in the adjustment journal.

Preparing adjusting entries

The adjustment journal is a journal made in the process of recording the balance change in an account that reflects the actual amount. If a problem is found in the trial balance it will be recorded in the adjustment journal. This adjustment journal is recorded on a regular basis, and the results are consistent with the journal as a general. If all transactions have been recorded in the adjustment journal, the results of the financial statements are actual (new).

Generating financial statement

The financial statements consist of several reports such as income statements, statements of changes in capital, cash flow statements, balance sheets, and then followed by compiling a closing journal. The income statement describes the company's performance statement of capital changes to see changes in the capital that has occurred in the company's balance sheet and can be used to predict liquidity, solvents, and flexibility. The cash flow statement provides relevant information about cash-out and cash entry in the current period.

Closing the books

The closing journal is certainly prepared at the end of the period by closing the profit and loss account. The function of the closing journal itself is to close the account in the profit and loss account for a certain period. The method is to make zero related accounts.

Nominal accounts must be closed because the account is used to measure the activity or flow of sources that occur in the current period. At the end of the accounting period, the nominal account has completed its function so it must be closed. Furthermore, the next period can be reused to measure new activities that starts to occur.

Types of Accounting Reports in Indonesia

According to Ikatan Akuntansi Indonesia (IAI), financial statements are a structured presentation of the financial position and financial performance of an entity. The purpose of the financial statement report is to provide information about the financial position, financial performance, and cash flow of entities that are beneficial for most users of financial statements in making economic decisions. The financial statements also show the results of management accountability for the use of resources entrusted to them. Financial statements are written records that convey the business activities and the financial performance of a company. Financial statements are often audited by government agencies, accountants, firms, etc. to ensure accuracy and for tax, financing, or investing purposes.

In Indonesia, the making of financial statements follows Pedoman Standar Akuntasi Keuangan (PSAK), which determines five types of financial statements, namely the income statement, balance sheet, changes in capital, cash flow, and notes to the financial statements:

Income Statement

The income statement is the main report of accountants in measuring the economic performance of a business, namely income minus costs during a certain accounting period. The income statement presents operating activities carried out by the company for a certain period. This report is used to evaluate the performance that has been achieved by the company and provides an overview of the achievement of cash flow in the future. This income statement contains information about revenue, expenses, cost of cost of production, tax burden, profit or loss of the company.

Balance Sheet

The balance sheet shows the company's financial position on a certain date, which is the number and type of activity (assets) and liability (obligations and equity) of the company. The balance sheet can be arranged in two forms, namely T (T Form) and L (L Form). In T form, all company assets are placed on the left side of the balance sheet with the title of assets (assets). Debt and capital are on the right side with the title Liabilities. In the L form, all company assets are placed at the top of the balance sheet and debt/capital are placed at the bottom of the balance sheet. The data contained in the balance sheet is useful for:
- Providing a financial database to calculate the company's return rate.
- Evaluating the capital structure of the company, namely assessing liquidity, solvency, and the company's financial flexibility.

Statements of Shareholders' Equity

Statements of Shareholders' Equity is a type of financial statement that describe changes either in the form of an increase or decrease in net assets for a period. Understanding the Equity Statements contains the number of changes in financial capital that occurs. So that entrepreneurs can have a picture of company planning going forward.

Cash Flow Statements

The cash flow statement provides information about the company's cash flow that enters and exits. In addition, the cash flow statement also functions as an indicator to predict cash flow in the future. In its presentation, cash flow statements are divided into three groups, namely operational activities, investment activities, and funding or financing activities.

Accounting Report Usage

Accounting or Financial Reports can be useful for several activities, especially in financial cases.

Applying Loan

When companies need more capital, they will apply loan from the bank or third parties. A bank as a lender will know the ability of a company in paying debts and interest in a timely manner from its financial reports.

Tax Reporting

In addition to finding out the financial performance of a company, through accounting or financial reports, the tax charged can also be calculated and known. Some taxes are charged to companies such as Income Tax (PPh 21), Income Tax on Dividends (PPh 23), and Income Tax on Interest (PPh 4 paragraph 2). The tax paid by the company will also be listed in the financial statements.

Shareholder Reports

In the financial statements, there are also details regarding the composition of the company's capital, both paid-up capital and share capital. In the financial record section, there are usually details about the company's shares owned by anyone. So that external parties can find out the composition of the company owner. While from the shareholder side, the financial statements are a report on the accountability of a company's performance. So that shareholders can find out the company's financial performance and position in that period.

How We Can Help

Financial Advisor (FA) will help you to make decisions related to finance and investment, both individual and company. Besides the advisory, your FA, as an educator, will help you to understand what is involved in meeting your future goals. Tax planning also related to this service. Tax planning allows clients to make better decisions that will have long-term financial implications on both current and future taxation.

FAQs

What is the basis for taxation in Indonesia?

The imposition of taxes in Indonesia can be based on taxpayers as in income tax (subjective tax) or based on tax objects such as VAT/ VAT (objective tax).

Why does the income statement describe the financial performance of a company

The income statement describes the performance of a company because this report shows the details of income, expenditure, and profit or loss generated by the company within a certain period. In this report, there is also information regarding the number of costs incurred for operations.

Why does the balance sheet describe the financial condition of a company?

The balance sheet describes the financial condition of a company because through the balance sheet we can find out the composition of the company’s assets and its capital arrangement. Company capital can be sourced from paid-up capital, stock capital, and debt. The balance sheet can also be used as an analysis of the flexibility and financial liquidity of the company.

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