Notice

Simply put, deferred income taxes represent an estimate of income taxes that would be due if assets on your balance sheet were sold at their indicated value. Deferred tax is an accounting concept (also known as future income taxes), meaning a future tax liability or asset, resulting from temporary differences or timing differences between the accounting value of assets and liabilities and their value for tax purposes. Deferred tax is recognized as a result of the Matching Principle. Deferred tax liabilities are provided in order that investors may understand the future tax liabilities that may arise as a result of accelerated tax relief taken to date, or income that has not yet been taxed.

Modern accounting standards typically require that a company provides for deferred tax in accordance with either the temporary difference or timing difference approach. Where a deferred tax liability or asset is recognized, the liability or asset should be reduced over the time (subject to new differences arising) as the temporary or timing differences reverses. Under International Financial Reporting Standards, deferred tax should be accounted for using the principles in “IAS 12: Income Taxes”. Similarly, in Nepal “NAS 09: Income Taxes” deals about the concept, measurement and presentation of deferred taxes in financial statements.

Given the scenario that NAS 09 came in to effect in respect of accounting periods commencing on or after 1st Shrawan 2064 and is mandatory in nature, we all have to be conversant and give due care for its compliance. It is learnt from the accounting professionals, income tax department and the tax auditors that there are some practical issues on interpretation and measurement of deferred tax leading to- confusion among the aforesaid stakeholders and non-compliance. Hence we decided to share/discuss those issues on the floor and get the solution from tax experts.