Could the next Indonesian income tax law adopt to the concept of income under IFRS

Abstract

This study has two purposes. The first is to explore the implementation of income concepts under current income tax law (UU PPh) before and after the convergence of International Financial Reporting Standards (IFRS) in Indonesia. The second is to explore whether the new UU PPh could adopt the notion of income under IFRS. By using a qualitative approach, this study concluded that before and after IFRS convergence, the income definition under current UU PPh has never changed since its first 1983 enactment. Such condition has resulted in some income tax issues based on the ability-to-pay principle and realisation doctrine. The main problem relates to the realisation principle as part of the historical cost accounting system, whereas accounting income refers to the mark-to-market, ignoring realisation rules. The second conclusion is that the income concept under the next UU PPh can partially apply the accounting income concept because it still needs the realisation principle.