Forgive me for the essay, I did not know how to summarise my thoughts.
The income Tax Payable module will be a big project.
I would propose a tool that can suggest something close to chargeable income but not compute and accrue income tax. For example, a tool that can assist in calculating “Profit before Tax depreciation and Amortization and other special items (Financial costs, Carry forward losses, repairs and improvements per tax laws, tax incentives, foreign exchange gains/losses)”
@lubos This is how I think we could start:
Tools required.
Reporting Categories for Accounts (Special Accounts, Ordinary accounts, other accounts)
Income example.
Create a Reporting category for “Ordinary Taxable income.” This category will show the Ordinary taxable income for the specified reporting period by adding the net movement for all income accounts under the Ordinary taxable income reporting category.
We can take it a step further by assigning categories to balance sheet accounts (Real Accounts) to include them in the report transformation report. This is because some revenues may be treated differently under accounting standards but are still considered taxable by tax authorities. That category can be called “Deferred according to accounting standards but considered taxable Incomes.” The report will only include what has entered the account (credits) during the specified period. When such “inflows” are finally treated as earned under accounting standards, they must be moved into an income statement account with a reporting category that will not be added for taxable income computation to avoid double counting of taxable revenue. For Example, a customer deposit (for long period rents) that meets the definition of taxable income by the tax law. The liability accounts (regular or special accounts) must be given a “Taxable income” reporting category to report credits or increments in that account for the period.
Other revenues may be deemed non-taxable by the tax authorities, resulting in a timing difference.
Solution.
Put such a revenue account in the “Non-Taxable” category, but the associated receivable account (customer account) for such income in a reporting category like “Revenues Taxable Upon Receipt.” The idea is that the report will pull “Receipts” transactions from the customer account for that period and report them as taxable income in the report transformation. A reporting category that only reports cash transactions from a linked account will be required.
I am aware that realisation does not only come in the form of a cash receipt. For example, you could use a journal entry to offset a receivable against a payable to realise a receivable. That is correct, but this suggestion will necessitate a method that ensures the workflow is not impacted even when such offsetting is required:
Create a different cash account for such offsetting transactions. To realise the asset through offsetting, create a receipt from the cash account and a payment from the same account to offset the liability. This will ensure that the suggested workflow is not broken. It also ensures that the books stay clean (limit journal entry use).
Example for Expenses.
The same workflow applies to managing expenses with timing differences.
Put asset accounts (Regular and special accounts) containing deferred expenses deemed taxable in the current year by the tax authority, for example, under the category “Deductible Expenses Treated as deferred in Accounts.” When such expenses are moved into the income statement, they should be moved into accounts under a “Non-deductible” reporting category to avoid using those expenses for tax calculations twice.
Put Payable accounts with temporarily unallowed expenses under a “Expenses not allowed but deductible Upon Payment” reporting category to account for timing differences due to cash payment (when tax authorities only allow expenses paid in cash). When the suppliers are paid, the report will pull such payments (net cash transactions) on the payable account (for the specified period) as realised and show them as deductible expenses in the Report Transformation.
There are many things you can do to handle situations if such improvements are introduced to Reporting categories and Report transformations.
Enable the use of Accounting Profit for A specified Period and accounts in Report Transformations.
Others may simply want to use report transformations to adjust the accounting profit for the year to arrive at the desired figure for calculating income tax payable. For example, they will reverse the impact of depreciation and non-deductive expenses on profit.
If this concept is implemented, a user who attempts to use and rely on such a report may be required to create numerous accounts, depending on the complexity of income tax computation in their jurisdiction. For example, if a supplier provides more than one service and the characteristics of the services provided by the supplier have different tax treatment, you may need to create two accounts for the supplier.
The concept is not yet clear in my mind and may contain some flaws, but I have a strong feeling that the solution for Income Tax computation will come from Report transformations if enhancements such as the one here are added: Add support for opening and closing balances - ideas - Manager Forum
Example of the proposed report transformation
