The concept of Positive & Negative Fiscal Corrections

Fiscal Positive Correction

Positive fiscal correction is carried out when there are expenses recognized in the commercial financial statements but not recognized according to tax provisions. As a result, the taxable profit becomes larger.

Examples of Positive Fiscal Correction:

Non-deductible expenses:

• Entertainment or representation expenses not accompanied by a nominative list.

• Article 21 Income Tax (PPh Pasal 21) paid by the company on behalf of employees.

• Salaries or remuneration for company owners (shareholders or individuals).

Difference in depreciation methods:

• If the depreciation according to accounting standards is faster than tax provisions, the difference must be positively corrected.

Provision for doubtful debts:

• Only provisions originating from certain financial institutions are allowed to be recognized for tax purposes.

Fiscal Negative Correction

Negative fiscal correction is carried out when there is income recognized commercially but not included as a tax object, or is subject to final tax. This causes the fiscal profit to become smaller.

Examples of Negative Fiscal Correction:

Income that is not a tax object (non-taxable income):

• Aid or donations that meet tax regulations.

• Dividends from a domestic company that have been taxed at the dividend-paying company level.

Income that has been subjected to Final Income Tax (PPh Final):

• Interest on deposits whose tax has been withheld by the bank.

• Income from land or building rentals that have been subjected to Final Income Tax.

Difference in depreciation:

• If the depreciation according to tax (fiscal) provisions is greater than the commercial depreciation, the difference is negatively corrected.