https://provisio-id.com/provisioconsulting – Fiscal Correction on Bank Interest Payment: Why Is This Happening?
In the business world, seeking capital through bank loans is a common practice for companies. Every loan comes with the obligation to pay back the principal along with the interest. In commercial bookkeeping, the bank interest paid will be considered as a cost that reduces the company’s net profit. However, in fiscal bookkeeping, not all interest payments can be recognized as expenses when calculating fiscal profit or loss. Why is this the case?
Factors to Consider
Based on the Minister of Finance Regulation Number 169/PMK.010/2015, there are rules regarding the ratio between debt and capital for income tax calculation purposes. The regulation stipulates that the maximum ratio between debt and capital is 4:1. If the ratio of debt to capital exceeds 4:1, then the interest expense arising from the debt must be calculated proportionally for the calculation of fiscal profit/loss.
Case Example
Let’s take a simple example to understand further. PT A has a debt to equity ratio of 5:1 and in that year the company recorded bank interest expense of Rp1,000,000,000. According to the prevailing rules, interest expense of Rp1,000,000,000 cannot be recognized in full in the calculation of fiscal profit/loss, but must be calculated proportionally based on a maximum ratio of 4:1. The calculation is as follows:
4/5 × Rp. 1,000,000,000 = Rp. 800,000,000
Thus, although PT A records interest expenses of Rp1,000,000,000 in its commercial bookkeeping, only Rp800,000,000 can be recognized as an expense for fiscal profit/loss calculation. That is, there is a fiscal correction of Rp200,000,000.
Impact on Fiscal Profit/Loss
To provide a clearer picture, let’s assume that PT A recorded a commercial loss of Rp100,000,000 for the year. With the fiscal correction of Rp200,000,000 to the bank interest expense, PT A will actually book a fiscal profit of Rp100,000,000. As a result, PT A must pay income tax for the year even though it suffered a commercial loss.
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Conclusion
The rules on debt-to-capital ratio in the calculation of income tax are very important to be considered by every company. This ensures that the company does not charge too much interest expense in the calculation of fiscal profit/loss. By understanding this rule, companies can better plan their funding structure and avoid potential fiscal problems later on.
Thus, fiscal correction of bank interest payments is a step taken to maintain balance and fairness in the calculation of income tax and encourage companies to have a healthy capital structure.