As the taxable profit is computed based on taxation laws which differ from the accounting policies applied to determine the accounting profit, hence the taxable profit and accounting profit can differ. The difference between taxable profit and accounting profit can be classified into:

• permanent differences
• timing differences

This articles looks at the aforesaid differences and their impact on tax

Permanent differences:

• Are those differences between taxable profit and accounting profit for a period which originate in the current perio and DO NOT reverse in the subsequent periods. For example, the tax law allow only a part of an item of expenditure, the disallowed amount would result in permanent difference
• The impact:-as this type of difference does not reverse in subsequent period(s), their impact on the amount of taxes to be changed in the statement of profit and loss of the current period is not measured and accounted for.

Timing Differences:

• those differences between taxable profit and accounting profit for a period which arise because the period in which some items or revenues and expenses are included in taxable profit do not coincide with the period in which such items of revenues and expenses are included or considered in arriving at accounting profit. Example:interest on securities is included in accounting profit on time proportion basis but the same is taxable profit at the time it is due.
• note that the total of these revenues included in accounting profit and taxable profit ultimately be the same, but periods of inclusion differ.
• The impact:-timing differences are adjusted for tax amount to be charged against the revenue of the appropriate period should be measured and accounted for.

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