Certain Thresholds for the Calculation of Allowances for Bad Debts

JAKARTA, DDTCNews - Taxpayers may deduct the establishment of allowances for bad debts from their gross income. The calculation is based on financial accounting standards (Standar Akuntansi Keuangan/SAK in Indonesian) applicable in Indonesia insofar as not exceeding certain thresholds.

As is known, the establishment of allowances for bad debts are expenses accrued from the carrying amount of allowances for bad debts at the end of the tax year minus the initial allowances for bad debts.

“The certain thresholds … apply to the calculation of the carrying amount of the allowances for bad debts at the end of the Tax Year,” reads a fragment of Article 4 paragraph (4) of MoF Reg. 74/2024, quoted on Friday (8/11/2024).

Pursuant to the provisions under Article 4 paragraph (5) of MoF Reg. 74/2024, the carrying amount of the allowances for bad debts at the end of the must use the lower value between the value calculated based on financial accounting standards applicable in Indonesia or the value of certain thresholds.

Certain thresholds are listed in Appendix letter A. Certain thresholds are determined and may be adjusted after coordinating with the Financial Services Authority (Otoritas Jasa Keuangan/OJK in Indonesian). The following is the list of certain thresholds for the calculation of the carrying amount of allowances for bad debts at the end of the tax year.

A. TAXPAYERS THAT GROUP RECEIVABLES QUALITY BASED ON STAGING

For taxpayers conducting business activities of distributing credit, including:

1. commercial banks;

2. financial leases;

3. consumer financing companies;

4. factoring companies;

5. the National Asset Management Company (PT Perusahaan Pengelola Aset in Indonesian);

6. financing companies;

7. venture capital companies;

8. infrastructure financing companies;

9. pawnshop companies;

10. the National Capital Development Corporation (PT Permodalan Nasional Madani in Indonesian);

11. PT Sarana Multi Infrastruktur (Persero);

12. the Indonesia Eximbank (Lembaga Pembiayaan Ekspor Indonesia/LPEI in Indonesian); and

13. the Indonesia Secondary Mortgage Corporation (PT Sarana Multigriya Finansial (Persero) in Indonesian),

the certain thresholds are 1.4% of accounts receivable in good standing; 23% of accounts receivable in poor standing; and 71% of accounts receivable in bad standing.

B. TAXPAYERS THAT GROUP RECEIVABLES QUALITY BASED ON COLLECTABILITY

For taxpayers who conduct business activities to distribute financing based on sharia principles, including:

1. commercial banks; and

2. the Indonesia Eximbank,

the certain thresholds are 1% of current receivables; 5% of special mention receivables after being deducted by the value of the collateral; 15% of substandard receivables after being deducted by the value of collateral; 50% of doubtful receivables after being deducted by the value of the collateral; and 100% of loss receivables after being deducted by the value of the collateral.

For taxpayers conducting business activities of distributing financing based on sharia principles, including:

1. financial leases;

2. consumer financing companies;

3. factoring companies;

4. financing companies;

5. venture capital companies;

6. infrastructure financing companies;

7. the National Capital Development Corporation;

8. PT Sarana Multi Infrastruktur (Persero),

the certain thresholds are 1% of current receivables after being deducted by the value of the collateral; 5% of special mention receivables after being deducted by the value of the collateral; 15% of substandard receivables after being deducted by the value of collateral; 50% of doubtful receivables after being deducted by the value of the collateral; and 100% of loss receivables after being deducted by the value of the collateral.

The Indonesia Secondary Mortgage Corporation (Persero) which conducts business activities of distributing financing based on sharia principles. The certain thresholds are 0% of current receivables; 5% of special mention receivables after being deducted by the value of the collateral; 15% of substandard receivables after being deducted by the value of collateral; 50% of doubtful receivables after being deducted by the value of the collateral; and 100% of loss receivables after being deducted by the value of the collateral.

People's economic banks that conduct business activities of distributing credit and/or financing based on sharia principles. The certain thresholds are 0.5% of current receivables; 3% of receivables in collectibility in special interest after being deducted by the value of the collateral; 10% of substandard receivables after being deducted by the value of collateral; 50% of doubtful receivables after being deducted by the value of the collateral; and 100% of loss receivables after being deducted by the value of the collateral.

Savings and loan cooperatives that conduct business activities of distributing credit and/or financing based on sharia principles. The certain thresholds are 0.5% of current receivables; 10% of substandard receivables after being deducted by the value of collateral; 50% of doubtful receivables after being deducted by the value of the collateral; and 100% of loss receivables after being deducted by the value of the collateral.

Taxpayers conducting business activities of distributing credit and/or financing based on sharia principles include pawnshop companies; and microfinance institutions. The certain thresholds are 1% of current receivables; 5% of special mention receivables after being deducted by the value of the collateral; 15% of substandard receivables after being deducted by the value of collateral; 50% of doubtful receivables after being deducted by the value of the collateral; and 100% of loss receivables after being deducted by the value of the collateral. (kaw)