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6.2. Main Differences between Commercial and Tax Accounting

There will be always differences between commercial and tax accounting in determining taxable income. In preparing the commercial profit and loss, the national GAAP (general accepted accounting principles) is normally used, whilst for tax some adjustments may be required.

The following are the main areas of difference when taxpayers calculate the taxable income:

Revenue Recognition

Basically tax follows accounting in determining revenue. However, there are few cases where the income may not be considered as income for tax purposes, such as income that has been subject to final tax or considered as non-taxable income. This type of income includes: (i) interest income paid by Indonesian banks or the Indonesian branch of foreign banks; (ii) dividend received from Indonesian subsidiaries; and (iii) income received in relation to construction activities, leasing of land and building;


Several expenses are not considered as tax deductible for corporate income tax purposes such as:

  • Profit distribution in whatever name or form such as dividends;
  • Expenses charged or spent for the personal benefit of shareholders, partners or members;
  • Reserves of funds, except for conditions explained in Sec. 6.4. below;
  • Premiums of health insurance, accident insurance, life insurance, endowment insurance, and scholarship insurance paid by individual taxpayers, except those paid by an employer and the premiums are calculated as income for the respective taxpayers;
  • Payments exceeding the fair remuneration paid to shareholders or other parties having a special relationship as compensation for work performed;
  • Assets granted, aid or donations, and inheritances, with some exceptions;
  • Income tax;
  • Expenses for the personal benefit of taxpayers or their dependents;
  • Salaries paid to a member of association, firm, or limited partnership whose capital does not consists of stocks;
  • Administrative sanctions in the form of interest, fines, and reassessments, as well as criminal sanctions related to tax regulations; and
  • Amortization / depreciation; this should create only timing difference, where commercial / accounting and tax depreciation / amortization rates are different.