Accrual Accounting and the Financial Treatment of Indonesia’s Article 21 Income Tax Liabilities

Abstract

This article examines the conceptual and accounting treatment of Indonesia’s PPh Article 21, which governs the taxation of individual income derived from employment. The focus is on how this tax obligation is calculated and reflected in corporate financial statements, especially in cases where the employer bears the tax burden. Adopting a qualitative, document-based approach, the study explores how principles such as accrual accounting, the matching concept, and fiscal transparency influence the treatment of payroll tax liabilities. The analysis reveals significant inconsistencies in the classification and disclosure of Article 21 charges, stemming from variations in gross-up calculations, recognition timing, and liability reporting. These inconsistencies affect not only financial transparency and audit reliability but also broader issues of governance, stakeholder trust, and compliance. By integrating international tax theory with accounting standards, this article offers a conceptual framework for the uniform treatment of payroll taxes and highlights the need for regulatory harmonization. The findings suggest that clear, standardized accounting practices for PPh Article 21 would strengthen financial reporting integrity and align Indonesian practices more closely with international norms.