The Ministry of Finance has issued a new regulation concerning procedures for recording and maintaining bookkeeping for tax purposes. The policy is outlined in the Minister of Finance Regulation No. 54/PMK.03/2021 concerning Procedures for Recording and Certain Criteria and Procedures for Organizing Bookkeeping for Tax Purposes (MoF Reg. 54/2021). Promulgated on 2 June 2021, this regulation has come into effect thereafter.
As per Article 2 of MoF Reg. 54/2021, individual taxpayers who carry out businesses or independent personal services and corporate taxpayers in Indonesia are required to perform bookkeeping. However, not all taxpayers are required to maintain bookkeeping.
In this regard, there are categories of individual taxpayers exempt from the obligation to perform bookkeeping, but are still required to keep records, as follows:
individual taxpayers who carry out business activities or independent personal services as per statutory provisions in the taxation sector are allowed to calculate net income using net income calculation norms;
individual taxpayers who do not carry out business activities or independent personal services; and
individual taxpayers who meet certain criteria.
There are two requirements for individual taxpayers who meet certain criteria, as follows:
individual taxpayers who carry out business activities and/or independent personal services; and
the gross turnover of overall activities is subject to final income tax and/or non-tax objects and does not exceed IDR4.8 billion in one tax year.
In the above case, the taxpayer may perform recording without submitting a notification on the use of net income calculation norms.
The gross turnover is determined based on the total gross turnover of each type and/or place of business and/or independent personal services in the previous tax year. In the event that the individual taxpayers are a husband and wife who wishes for a prenuptial agreement on the separation of assets or separation in exercising their taxation rights and obligations, the amount of gross turnover is determined based on the combined gross turnover of the husband and wife’s businesses.
On a side note, individual taxpayers under this regulation refer to individual taxpayers who carry out business activities and/or independent personal services and whose gross turnover of such business activities is less than IDR4.8 billion in one tax year.
In calculating their net income, taxpayers may use net income calculation norms and perform recording on the condition that they notify the Director General of Taxes within the first three months of the tax year concerned.
As per Article 3 of MoF Reg. 54/2021, records consist of regularly collected data as the basis for calculating the amount of tax payables. The recording must be based on four conditions, as follows:
recording is carried out with due regard to good faith and reflects the actual condition or business and is supported by documents that constitute the basis of recording;
carried out in Indonesia using Latin letters, Arabic numerals, and the rupiah currency unit at the actual and/or deemed value. Furthermore, the recording is prepared in Indonesian or in a foreign language permitted by the minister as per statutory provisions in the field of taxation;
in a tax year, i.e. one calendar year from January 1 to December 31; and
prepared chronologically and systematically based on the order of the date of receipt of gross turnover and/or gross income.
Recording can be performed electronically or non-electronically by individual taxpayers. Books, records, and documents as the basis of the recording and other documents, including the results of data processing, must be kept for 10 years in Indonesia. Storage must be performed at the residence and/or place of business and/or independent personal services for individual taxpayers.
Bookkeeping, on the other hand, must be carried out based on prevailing financial accounting standards in Indonesia, unless otherwise stipulated by statutory provisions in the field of taxation. The bookkeeping must be maintained with reference to three things, as below:
bookkeeping is maintained in good faith and fully discloses the actual circumstances or business;
bookkeeping is maintained in Indonesia using Latin letters, Arabic numerals, rupiah currency units, and compiled in Indonesian. Bookkeeping can be maintained using a foreign language or currency other than rupiah after obtaining permission from the Minister of Finance;
bookkeeping is carried out consistently with the principle of consistency and accrual or cash basis. The principle of consistency refers to the same principle used in the accounting method in the previous tax year to prevent a shift in profit or loss.
The principle of consistency in the accounting method may take the form of the revenue recognition basis, a financial year, an inventory valuation method, or a depreciation and amortization method. Changes to bookkeeping methods must be approved by the Director General of Taxes. Bookkeeping must at least consist of records pertaining to assets, liabilities, capital, income and costs, as well as the cost of acquisition and supply of goods or services including sales and purchases.
On another note, bookkeeping refers to a recording process carried out regularly to collect financial data and information which includes assets, liabilities, capital, income and costs, as well as the total cost of acquisition and supply of goods or services, which is closed by compiling financial statements in the form of a balance sheet, and income statement for the relevant tax year. Bookkeeping serves as the basis for the preparation of financial statements in the form of balance sheets and income statements for the relevant tax year.
As per Article 10 paragraph (1) of MoF Reg. 54/2021, for tax purposes, cash basis bookkeeping can be maintained by certain taxpayers. Certain taxpayers that can maintain cash basis bookkeeping are taxpayers that meet two requirements under Article 10 paragraph (2) of MoF Reg. 54/2021, inter alia:
the taxpayers must be commercially entitled to maintain bookkeeping based on financial accounting standards applicable to micro and small enterprises; and
individual taxpayers who are allowed to use the Net Income Calculation Norms (Norma Penghitungan Penghasilan Neto/NPPN) or meet certain criteria but choose or are required to perform bookkeeping.
In addition to individual taxpayers, there are corporate taxpayers with gross turnover not exceeding IDR4.8 billion in a year. Said gross turnover is the total gross turnover of each type and place of business in the previous tax year. The gross turnover is based on the total gross turnover in each type and/or place of business in the previous tax year.
Cash basis refers to a method in which the calculation is based on income received and expenses paid in cash. According to this system, income or expenses are considered as income or expenses if they have actually been received or paid in cash within a certain period.
In cash basis bookkeeping, 3 conditions must be met by taxpayers, namely:
the calculation of the amount of income from business or independent personal services must include all transactions, both cash and non-cash;
the calculation of the cost of goods sold must take into account all purchases and inventories, both cash and non-cash; and
the acquisition of depreciable property with a useful life of more than 1 year can only be deducted from income through depreciation.
To maintain cash basis bookkeeping, taxpayers are required to submit a notification every tax year. The notification is submitted by taxpayers with the central status, i.e. taxpayers who are registered with the Tax Office and whose 3 last digits of the Tax Identification Number are 000.
Notification to maintain cash basis bookkeeping must be submitted no later than the filing of the annual tax return for the previous tax year. Written notification is submitted in person or by post/forwarding company/courier service with proof of postage.
The notification is submitted to the head of the Tax Office where the taxpayer with the central status is registered. As for newly registered taxpayers, the notification obligation must be fulfilled no later than 3 months from the time of registration or the end of the tax year, whichever occurs first. Cash basis bookkeeping notified within said period is deemed to have been approved and comply with the requirements.
For electronically submitted notification, the Directorate General of Taxes (DGT) system issues a certificate of cash basis bookkeeping. The certificate is issued automatically upon the submission of the notification. The DGT system may also notify that the taxpayer cannot perform cash basis bookkeeping if the notification has passed the specified period.
In closing provisions, the Ministry of Finance stipulates the implementation of cash basis bookkeeping that will take effect in tax year 2022. Cash basis bookkeeping is part of the revenue recognition principle.