Approaching the deadline of 2018 tax filing, taxpayers are obliged to file their income tax returns to the Directorate General of Taxation. In principle, taxable income is made up of gross income that has been deducted with expenses. One of the expenses that can be used as the basis to deduct gross income is bad debt expense.
Below are requirements that need to be fulfilled for bad debts to be deductable from gross income:
1. The debt must have been treated as an expense in the commercial income statement
2. The Taxpayer must submit a list of bad debts to the Directorate General of Taxation in the form of a hard copy and soft copy
3. The bad debt:
a. and the problems concerning its recovery have been submitted to the District Court or government institution that is handling the state’s payable debts. This is proven by the copy of recovery proof to the District Court or government institution that is in charge of handling the state’s payables;2 or
b. have a written agreement concerning the debt relief/write off between relevant creditors and debtors, that shall be proven by a copy of the written agreement that has been legalised by a notary at the time of the submission to the Directorate General of Taxation;3 or
c. a debt that has been published in a general or special publication, proven by copy of the publication proof at the time of the submission to the Directorate General of Taxation;4 or
d. there is an acknowledgement from the debtor that a certain amount of debts have been erased, which is proven by a written copy of the document that contains the acknowledgement of the action at the time of submission to the Directorate General of Taxation.
5 Furthermore, the provisions contained in in Ministry of Finance Regulation 2017/2015 provides that the preceding requirements in point 3 above does not apply to the receivables that clearly cannot be recovered from small debtors
6 or the other small debtors. In other words, the receivables that clearly cannot be recovered from small debitors are the receivables which do not exceed Rp. 100.000.000 (One hundred million rupiahs),
7 while the receivables that clearly cannot be recovered from other small debitors are the receivables which amount do not exceed Rp. 5.000.000,- ( five million rupiahs).
8 In addition to comply with the requirements of number 3 in above, the submission of a list of receivables that clearly cannot be recovered to the Directorate General of Taxation must be enclosed by tax annual notices (SPT),
9 and the identity of the debtor in the form of (i) name; (ii) the taxpayer’s principal number (not mandatory for accounts that are clearly cannot be recovered which comes from the debt ceiling up to Rp 50,000,000); (iii) addresses; (iv) the number of ceilings money given; and (v) the amount of receivables that clearly cannot be recovered.10