Companies have an obligation to fulfill their corporate social responsibility (CSR) as a form of gratitude to the community or the surrounding environment. The forms of CSR provided by companies to the surrounding environment can take various forms and methods. One CSR activity is for companies to make donations to support environmental activities, such as donations for competitions or other events. These donations will certainly incur costs for the company, thereby affecting its profits. In accounting terms, the costs arising from these donations are recognized as expenses because the company has indeed spent money to make these donations to the surrounding community.
Meanwhile, in terms of taxation, not all donation costs can be categorized as expenses, so they cannot reduce the company’s profits. As we know, in calculating corporate taxation, profits are used as the basis for calculating corporate taxes. If these donation costs cannot reduce income, then it is certain that corporate taxes will be high. Therefore, in order for donations to be used as income deductions, they must meet the requirements of Government Regulation No. 93 of 2010, as follows:
- Donations for national disaster relief, which are donations for victims of national disasters delivered directly through disaster management agencies or authorized institutions.
- Donations for research and development, which are donations for research and development conducted in the territory of the Republic of Indonesia.
- Donations for educational facilities, which are donations in the form of educational facilities delivered through educational institutions.
- Donations for sports development, which are donations for fostering, developing, and coordinating an organization or a group of organizations delivered through sports development institutions.
- Social infrastructure development costs are costs incurred for the purpose of building facilities and infrastructure for public use and are non-profit in nature.
Other requirements for donations to be considered as income deductions in accordance with Article 2 of Government Regulation No. 39 of 2010 are as follows:
- Taxpayers must have net fiscal income based on the previous year’s annual tax return.
- The donation does not cause a loss in the tax year in which the donation is made.
- It is supported by valid evidence.
- The recipient institution has an NPWP (Taxpayer Identification Number).
There is a donation amount used for financing social infrastructure development that can be deducted from gross income in accordance with Article 3, which is not exceeding 5% of the previous tax year’s net fiscal income. If the donation is given to a party with a special relationship, the donation cannot be deducted from the gross income of the donating company.
Amidst the company’s obligation to provide CSR, the company must also consider whether the donation can be accounted for and taxed so that it can reduce gross income or not. Therefore, understanding related to donation costs that can be used as income deductions must be thoroughly understood so that the company’s good intentions in providing CSR in the form of donations do not end up harming the donor company.
By Olina Rizki Arizal – Partner
TBrights is a tax consultant in Indonesia that is currently an Integrated Business Service in Indonesia that can provide comprehensive tax and business services.
Reference:
- The Government Regulation Number 93 of 2010 on National Disaster Management Contributions, Research and Development Contributions, Educational Facility Contributions, Sports Development Contributions, and Social Infrastructure Development Costs That Can Be Deducted From Gross Income.
