Shifting tax mode

Income tax under ‘estimated profit’ could shift to ‘lump-sum’ or ‘real’ profit

The Ministry of Finance issued an order for its taxation units on December 2, stating that taxpayers who pay their income tax on the basis of the estimated income method may choose to be taxed on the basis of the lump-sum profit method or the real profit method.

There are three methods for the determination of the income tax base: the real profit method, the lump-sum profit method, and the estimated profit method. Small businesses with less than four employees and liberal professions are usually taxed according to the estimated profit method.

Taxpayers wanting to shift to the lump-sum profit method should file an application to the income tax unit at the Ministry of Finance at least one fiscal year after they’ve been subject to income tax on the basis of the estimated profit. This provision is intended to verify the estimated annual profit these taxpayers make.

Under the lump-sum profit method, taxable income is a percentage of sales. This method is mandatory for insurance companies, transport companies, and oil refineries.

According to the Income Tax Act, income taxpayers may elect to be taxed on the basis of the real profit method. The act states that this election is irreversible.

The real profit method is mandatory for certain entities, including corporations and private businesses with more than four employees.