Bad Debts, Provisions on Quality of Receivables and Collateral Value

JAKARTA, DDTCNews - MoF Reg. 74/2024 contains provisions related to the groups of receivables quality in the establishment of allowances for bad debts that may constitute deductible expenses.

The establishment of allowances for bad debts are expenses accrued from the carrying amount of allowances for bad debts at the end of the tax year minus the initial allowances for bad debts. See ‘New Regulation on the Establishment of Allowances for Bad Debts Issued’.

“The carrying amount of the allowances for bad debts at the end of the tax year ... is established and calculated for each group of receivables quality,” reads a fragment of Article 5 paragraph (1) of MoF Reg. 74/2024, quoted on Monday (4/11/2024).

Pursuant to Article 5 paragraph (2) of MoF Reg. 74/2024, groups of receivables quality include groups of receivables quality based on staging; or groups of other receivables quality. Groups of receivables quality based on staging consist of accounts receivable in good standing; in poor standing; and in bad standing.

Groups of other receivables quality use groups of receivables quality based on collectibility. These groups consist of current receivables; special mention receivables; substandard receivables; doubtful receivables; and loss receivables.

Pursuant to the provisions under Article 5 paragraph (6) of MoF Reg. 74/2024, the receivables constituting the basis for the calculation of the carrying amount of the allowances for bad debts at the end of the tax year are:

• the carrying amount of credit and/or financing based on sharia principles receivables in the financial statements at the end of the current tax year, for receivables grouped based on staging; or

• the carrying amount of credit and/or financing based on sharia principles receivables in the financial statements at the end of the current tax year after being deducted by the value of collateral, for receivables grouped based on collectability.

The provisions on the deduction of the value of are excluded for receivables that constitute:

• the carrying amount of Financing Based on Sharia Principles current receivables, for Commercial Banks, the Indonesian Eximbank (Lembaga Pembiayaan Ekspor Indonesia/LPEI in Indonesian) and the Indonesia Secondary Mortgage Corporation (PT Sarana Multigriya Finansial (Persero) in Indonesian); and

• the carrying amount of current credit and/or financing based on sharia principles receivables, for people’s economic banks, savings and loan cooperatives, microfinance institutions and pawnshop companies.

Collateral Value

Pursuant to Article 6 paragraph (1) of MoF Reg. 74/2024, the amount of the value of collateral taken into account as a deduction of the carrying amount of receivables is set at 100% of the value of liquid collateral and 75% of the value of other collateral. The value of collateral is based on the taxpayer's assessment.

In the event that the taxpayers referred are taxpayers required to submit reports to the Financial Services Authority (Otoritas Jasa Keuangan/OJK in Indonesian), the value of collateral shall use the value of collateral in the reports to the Financial Services Authority pursuant to statutory provisions.

“The types of liquid collateral and other collateral... are listed in Appendix letter C which constitutes an integral part of this ministerial regulation,” reads Article 6 paragraph (4) of MoF Reg. 74/2024.

MoF Reg. 74/2024 came into force on the date of promulgation, i.e., 18 October 2024. When MoF Reg. 74/2024 came into force, the provisions under Article 1 letter a and Articles 2 to 11 of MoF Reg. 74/2024 were repealed and declared invalid.

“The provisions on the calculation of the expenses for establishing allowances for bad debt stipulated under this ministerial regulation shall come into force from the 2024 tax year,” reads Article 12 of MoF Reg. 74/2024. (kaw)