Bad Debts Amortization in compliance with Tax Legislation

Abstract

             This paper intends to study and collect information from academic papers, relevant laws and discusses tax ruling of the Revenue Department which related to bad debts amortization under Corporate Income Tax (CIT) in order to give knowledge to entrepreneurs who are subject to corporate income tax. The entrepreneurs should realize the importance and advantages of bad debts amortization in terms of tax compliance. According to studies, it has been found that bad debts amortization in accounting and taxation is different. Bad debts are written off in accounting held by the accounting standard No. 101 Doubtful and bad debts; on the other hand, bad debts amortization in taxation must consider in legal basis. Therefore, it doesn’t mean that the bad debts which is an expense included in financial statement can also be a taxable expense. In order to maximize utilities for the entrepreneurs to write off the bad debts, they should well plan and clearly understand how bad debts are allowed by tax legislation, tax ruling, judgments and other documents for the purpose of correctness in tax compliance. As the result, the entrepreneurs will be able to pay appropriate corporate income tax which matching with their performance and not necessary to adjust financial profit to be taxable profit in P.N.D. 50 in terms of bad debts prohibited. Due to the fact that there are many tax rules related to bad debts and may be difficult for the entrepreneurs to understand correctly, therefore; the Revenue Department should realize and concern by giving clearly knowledge to the entrepreneurs as well as setting a good guidelines that is easier to understand for the entrepreneurs to follow willingly and it can reduce fine and surcharge of tax illegally. Moreover, it can save time monitoring of the Revenue Department officers which compliance with Pre-Assessment Agreement (PAA).