SW Indonesia Tax Update PMK 74 Tahun 2024 ENG

REGULATION OF THE MINISTER OF FINANCE NUMBER 74 OF 2024 (PMK 74/2024) REGARDING THE FORMATION OF ALLOWANCES FOR DOUBTFUL ACCOUNT THAT MAY BE DEDUCTED FROM GROSS INCOME

This regulation aims to provide legal certainty, fairness, and ease in calculating the cost of establishing bad debt allowance for banks and other business entities that extend credit, leases with option rights, consumer finance companies, and factoring companies for tax purposes.

Below are some key provisions outlined in PMK 74/2024:

1. Taxpayers may deduct uncollectible accounts receivable through:
2. Writing off accounts receivable when it is evident that the receivables cannot be collected despite maximum collection efforts; or
3. Establishing reserves, applicable to taxpayers engaged in banking businesses and other entities involved in credit distribution, finance leases with purchase options, consumer financing companies, and factoring companies.

• The formation of allowances for doubtful accounts by certain taxpayers (taxpayers engaged in banking businesses and other entities involved in credit distribution, finance leases with purchase options, consumer financing companies, and factoring companies) may be deducted from gross income, as calculated based on applicable financial accounting standards in Indonesia. This applies provided that the allowance for doubtful accounts at the end of the fiscal year does not exceed certain limits applied in calculating the carrying value of the allowance for doubtful accounts at the end of the fiscal year. These limits are detailed in the annex of this regulation.

• The formation of allowances for doubtful accounts is an expense derived from the carrying value of the allowance for doubtful accounts at the end of the fiscal year, reduced by the opening balance of the allowance for doubtful accounts after accounting for receivables that have been definitively uncollectible during the fiscal year as deductions.

The carrying value of the allowance for doubtful accounts at the end of the fiscal year must use the lower value between the amount calculated based on the applicable financial accounting standards in Indonesia and the specified limit.

If the result of the expense calculation is less than zero, the amount is recognized as income in the current fiscal year.

• The carrying value of the allowance for doubtful accounts at the end of the fiscal year is established and calculated for each group of receivables quality, including:
• Groups of receivables quality based on staging; or
• Other receivable quality groups.

• Certain taxpayers who recognize receivables that are uncollectible as a deduction from the carrying amount of the allowance for bad debts at the beginning of the tax year must submit documents in the form of a list of receivables that are uncollectible and a copy of proof of fulfillment of receivables that are uncollectible as an attachment to the Annual Income Tax Return in the format stipulated in this Ministerial Regulation.

Any recoveries during the fiscal year of receivables that were previously deemed definitively uncollectible are considered income for the current fiscal year.

• The carrying value of the allowance for doubtful accounts at the beginning of 2024 is the allowance for doubtful accounts at the end of 2023, calculated in accordance with this regulation. However, if there is a difference between the carrying value at the beginning of 2024 and the carrying value at the end of 2023 due to changes in this regulation, the following provisions apply:
• for any excess difference, it will be recognized as an expense to be deducted over a period of up to two (2) tax years, namely in 2024 and/or 2025; and
• for any shortfall, it will be recognized as income in 2024.

• The provisions for calculating the expense for the formation of an allowance for doubtful accounts, as outlined in this Ministerial Regulation, apply starting from the 2024 fiscal year. This Ministerial Regulation is effective as of October 18, 2024.

Tax services assistance please contact:

Rani Widianti

  T. (+6221) 2222-0200

  E. [email protected]

Alvina Oktavia

  T. (+6221) 2222-0200

  E. [email protected]