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Income tax could provide insights into the effectiveness of tax policy and the roleof accounting. This paper examines the Indonesia income tax gap by focusing onaccounts of taxpayers income statements frequently adjusted by tax auditors. Thestudy also examines the reosnns for these tax audit adjustments. This paper firulsthat the tax non-compliance can be traced into some accounts which are: 1) generaland administrative costs; 2) COGS; and 3) sales. This study reveals that the mainreason of the tax adjustments is due to the lack of evidence or supporting documents.The other reasons are inadequate tax knowledge of the taxpayers, the specificmethod of tax audit which leads to different tax payable amounts according to theauditors, the absence of arms length transactions, and no proper book keepingby the tax payer. In addition, this paper finds the relationship between the taxableincome difference and two factors, i.e. companys turnover and type of industry(manufacture/non-manufacture). The results of this study bring implications for thetax policy improvement in Indonesia and the harmonisation between tax regulationsand accounting standards; and these would be the main contribution of this study. |
