Does your Company often make benefit from fixed asset revaluation for efficiency purpose? If it does, now it is the time for your Company to make a brand new strategy. In this year, the tax regulations and the Standard Financial Accounting Statement concerning revaluation has been amended.
Last 23 May 2008, the latest tax regulation concerning fixed asset revaluation of Finance Minister Regulation No. (PMK) No. 79/PMK.03/2008 became effective. This regulation replaced the Decree of Finance Minister (KMK) No. 486/KMK.03/2002 which has been the rule of the game for the last five years ago. Along with this change, the Standard Financial Accounting Statement (Pernyataan Standar Akuntansi Keuangan:PSAK) concerning Fixed Asset – including revaluation – has been revised prior to the validity of PMK No. 79/PMK.03/2008. As a result, there are significant changes requiring taxpayers’ attention regarding fixed asset revaluation.
Cost Efficiency Factor
Increase of Depreciation Expense and Final Income Tax Imposition
As an effort to know the latest fair market price of the asset recorded in the financial statements, fixed asset revaluation generally will result in an increase of value and asset depreciation expense. The increase of depreciation will reduce profit which gives impact to a reduction in Corporate Income Tax which is quite material in the amount. If the highest tariff of Corporate Income Tax is applied, taxpayers may enjoy the reduction of Corporate Income Tax up to 30% due to the increase of depreciation expense per year.
On the other side, taxpayers who conduct revaluation should only bear 10% Final Income Tax from the profit in form of surplus resulted from the revaluation (Asset value after revaluation – Remaining book value before revaluation). The surplus as an object to Final Income Tax is not necessarily to be accumulated with other incomes which are subject to Corporate Income Tax.
By the increase of depreciation expense as deduction to Corporate Income Tax calculation and the imposition of 10% Final Income Tax,taxpayers basically may enjoy tax saving up to 20% (30% -10%). So, fixed asset revaluation is not only a make over for their financial statements but also still a potential way of tax saving.
Without Loss Carry Forward
In the previous related provisions in KMK Nomor 486/KMK.03/2002, the basis of tax imposition on revaluation is the surplus resulted from the revaluation (value after revaluation – remaining book value before revaluation) is deducted with loss not yet carried forward.
With the opportunity to calculate loss not yet carried forward as to deduct the surplus from the revaluation, in the past time fixed asset revaluation often used by taxpayers-estimated not to gain profit-to calculate loss before its carry forward period is due.
Nowadays, the condition is significantly different since any loss not yet carried forward can no longer be calculated as deduction to surplus from revaluation. Consequently, such taxpayers as mentioned above cannot use the old strategy, conducting fixed asset revaluation as a means to calculate loss whose carry forward period is almost due. In other words, for these taxpayers, now fixed asset revaluation is not completely beneficial as it was.
Unlike the taxpayers estimated to gain loss, the taxpayers who are potentially to gain profit in the future will get more benefits. Here is the simple comparison. If the loss is compensated against the surplus from revaluation, these taxpayers can only reduce their tax burden at 10% from the loss that can be carried forward. On the other hand, by carrying forward their loss against the profit in the future, the said taxpayers can reduce their tax burden up to 30% from the loss allowable to be carried forward. It means that for the taxpayers who are still going to gain profit, fixed asset revaluation provides a wider opportunity for tax saving.
Additional Tax upon Asset Disposals
A revalued asset is treated as asset with new useful life according to its categorization. If a revalued asset is transferred before the new useful life ends, the related taxpayer will be subject to sanction, unless the transfer occurs due to force majeur such as merger, acquisition/business expansion for tax purpose or due to its severe damage that cannot be repaired. Based on the previous provision, the sanction shall be in form of additional 20% Final Income Tax imposed on the surplus without calculating the loss not yet carried forward.
Now, based on the PMK No. 79/PMK.03/2008, the sanction is as high as the highest tariff of Corporate Income Tax which prevails at the revaluation time minus 10%. Regarding the plan of for Corporate Income Tax with a single tariff application at 30% including the possibility of its reduction into 25% within a 5 (five) year period (based on the Income Tax Bill) and assuming that there are no changes related to the plan, in the future the sanction charged will only at 15% (25% – 10%).
Reduction of Tax Installment Period
The previous provisions stipulated that if the financial position does not allow a taxpayer to settle Income Tax due at once, the taxpayer can pay the installments within 12 months at a maximum. In addition, if the tax due amount is more than IDR 2 billion, the taxpayer is given a longer installment period at a maximum of 5 years.
Now,regarding the installment period, the taxpayers have only one choice given, which is a maximum of 12 months, regardless whether they have material or immaterial amount of tax due. Up this article is written, any further regulation of PMK No. 79/PMK.03/2008 has not been issued, particularly concerning a detail of tax installment period extension which may be more than 12 months. Assuming that the installment period is shortened for the taxpayers having material amount, it will actually bring more benefit for them. Why? It is because the longer the tax installment period is, the bigger interest charged on the remaining tax due amount to be born by such taxpayers.
Tax Regulation Versus Financial Accounting Standard Statement (PSAK)
税法 対 財務会計標準ステートメント(PSAK)
In the PSAK (Pernyataan Standar Akuntansi Keuangan) No.16 revised edition year 2007 effective per 01 January 2008, there is a provision stating as follows, ”if an asset is still revaluated, all fixed assets in the same group should also be revaluated.” What are the consequences of this statement? In the commercial accounting, it is not necessary for a company to revaluate all fixed asset owned, only those included in the same group. By contrast, the latest tax provision stipulates differently where revaluation should be carried out to all tangible fixed assets – including or excluding land with ownership right/right to use – in Indonesia, owned and used for acquiring, collecting and maintaining income as tax object.
Another crucial difference is that the period of fixed asset revaluation. Based on PMK No.79/PMK.03/2008, fixed asset revaluation cannot be performed again until a five year period after the last revaluation elapse, whereas the latest PSAK No. 16 does not specifically regulate the matter. The PSAK No. 16 only states that “revaluation should be made in a regular orderliness to ascertain that the amount recorded is not materially different from the amount determined under a fair value at the balance sheet date.” Further, it stipulates that, “the revaluation frequency depends on the change of fair value of a fixed asset being revalued. If the fair value of the revalued assets is different in material amount compared to the amount recorded, subsequent revaluation should be conducted.” It smeans that commercially, a company may conduct revaluation prior to the end of a five year period after the last revaluation performed.
The difference between the PSAK treatment and the tax regulation should be recorded in detail and continuously based on the common bookkeeping practice used in Indonesia. Above all, the most basic thing to do is to ensure that the revaluation is performed in accordance with the prevailing tax regulation. If not, even though there is a revaluation which is commercially recorded in the financial statements, it is possible that it may not be recognized fiscally! The worst consequence is that cost efficiency as the main purpose of revaluation cannot be achieved.
Is revaluation still interesting to be the choice of taxpayers? Well, the answer may vary. The key consideration will be whether the related taxpayers meet the requirement for revaluation. It is only entitled to Resident Corporate Taxpayers and Permanent Establishments which do not maintain their bookkeeping in English and in US Dollar. In addition, before conducting revaluation, the related taxpayers should fulfill all tax obligations up to the last tax period prior to the tax period in which the revaluation is performed.
After considering that the above requirements are already fulfilled, it is the suitable time for a related taxpayer to conduct revaluation of all tangible fixed assets – including land or excluding land with ownership status/right to use status. The most important thing to remember is that they should firstly do an in depth analysis of the benefits resulted from the revaluation decision if they wish to enjoy san optimum cost efficiency/tax savings penghematan dana. Taking a comparative test of the cost and the benefit either in short term or in long term is a must. After all, every taxpayer has different degree of potential cost efficiency.
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