Tax reform is a change in the taxing system of a country. Changes in the tax system have different implications, both negative and negative depending on the diversion of its effect and impact; for instance, income tax, value-added tax, and land taxes often happen to be subjects of change in many countries. Some reforms happen in phases, while others take place immediately.
A company should consider its tax year, which is fixed from the time it files its first tax returns. This enables a company to know when the returns are due and how the new rates affect them. There are many types of income, for example, profit on goods sold, rental income, interest on bank deposits, profit on shares, and bonds. A company should also determine what kind of its income will be affected and communicate it to the relevant stakeholders. Different taxes affect others; for instance, income tax affects the dividends issued out by a company. Customers should be informed in case the price of services or goods has gone up with necessary changes being made in the relevant financial statements.
Kieso defines “Deferred tax as anticipated tax occurring due to temporary differences between the accounting value of assets and liabilities and their value for tax purposes.” These differences occur due to the tax base, which is the value determined for that assets or liabilities for tax reasons and not for accounting purposes. “Tax base for an asset is deducted from any economic income that a company gets when it recovers the carrying amount of the asset, and tax-base for a liability is its carrying capacity less any amount that will be deducted for tax in future years in respect of that liability.” “Temporary differences, therefore, can either be deferred tax liabilities or assets. The deferred tax liabilities occur when tax relief is provided after an expense is deducted for accounting reasons while the latter arises when tax relief is recognized earlier or income outstanding but not allowed tax until it is paid.”
Certain losses are deductible for tax purposes, and these losses could be due to accounting expenses. To qualify, the losses must be paid by insurance and also must be incurred long the year of taxation. The losses must be sudden unexpected such as floods, fires, theft, etc. Deferred tax assets relating to tax losses are recognized so that they are carried forward to reduce taxable income in future periods.