Navigating IFRIC 21: Accounting for Levies Imposed by Governments
Kaleem Ullah Tipu ACA
Manager - I Tax at KPMG | ACA | FCCA | LL.B | VAT | Corporate Tax | Life Member - Lahore Tax Bar Association
IFRIC Interpretation 21 (IFRIC 21), "Levies," provides guidance on when to recognize a liability for levies imposed by governments, other than income taxes, in the financial statements. This interpretation is particularly relevant for entities subject to significant levies, such as environmental or regulatory charges, imposed by public authorities.
Key aspects of IFRIC 21 include:
1. Scope and Definition: IFRIC 21 applies to the accounting for liabilities to pay levies that are not income taxes. A levy is defined as an outflow of resources embodying economic benefits that is imposed by governments on entities in accordance with legislation.
2. Recognition of Levy Liabilities: The interpretation clarifies that an entity should recognize a liability for a levy when the obligating event specified in the legislation occurs. The obligating event is the activity that triggers the payment of the levy in accordance with the relevant legislation.
3. Timing of Liability Recognition: The recognition of a levy as a liability depends on the triggering event as identified in the legislation. This could be a specific date, reaching a minimum threshold, or the occurrence of a specific transaction or event.
4. Measurement of Levies: Once the obligating event occurs and a liability is recognized, the levy should be measured in accordance with the principles of IAS 37 "Provisions, Contingent Liabilities and Contingent Assets".
5. Disclosure Requirements: IFRIC 21 requires entities to disclose information about the nature of the levies, the timing of their recognition, and the amount recognized in the financial statements.
6. Impact on Financial Statements: The interpretation impacts the recognition and measurement of liabilities and expenses related to levies imposed by governments, affecting both the balance sheet and income statement.
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