The tax printed on a receipt was not tax we could subtract

When you work in Jakarta, paper comes out of your pockets at the end of the day. The one from the coffee place is a long thin strip of thermal paper; the one from the food stall across the street is written out in ballpoint. At the end of August I photographed the pile that had built up, 41 pieces of paper, with the camera in KAZENA Books. The reading worked better than I expected and produced 41 expense entries. Seventeen of them had a tax line on them.

The problem is what those 17 became. When the software found a tax line on a piece of paper, it put that amount into the input tax account. That is, it recorded the amount as one that can be subtracted from the tax we owe. It came to 1,240,000 rupiah in total. Once an amount sits in that account, the monthly summary really does subtract it.

In Indonesia, whether input tax can be subtracted is not decided by whether the tax was paid. What decides it is the document. There is a tax invoice called a faktur pajak, carrying a 16 digit number, with the buyer's own number on it. Only once that document exists does the amount become one you can subtract. A tax line printed on the paper that comes out of a till is not a faktur pajak. Of the 41 pieces of paper, 2 carried such a number.

The other 15 are tax that cannot be subtracted. Cannot be subtracted does not mean it disappears. The amount is part of a cost. The tax paid along with the coffee stays in the books as part of what the coffee cost. Only its place in the ledger is different; the money left the account either way.

Here is where the design question starts. There were 2 shapes available to us. One was to record the amount as input tax exactly as it was read, and show a warning that the document may be missing. The other was to treat anything without a faktur pajak number as not subtractable from the start, by our own decision. The first leaves the decision to the person using it; the second makes the decision for them.

We liked the warning at first, because not deciding on someone's behalf looked like the more courteous thing to do. But picture the screen of a person entering 50 or 100 pieces of paper a month, and the answer became plain. A warning that appears every time stops being read by the 3rd day. We decided to stop calling something a safeguard when it goes away as soon as you press it.

I asked V, the accountant in Jakarta who tests KAZENA Books with the real data of her own practice. She said that when a client arrives with a box full of paper, the first thing her office does is not arithmetic but sorting: the ones with a faktur pajak into one pile, the ones without into another. Adding the amounts up comes after that. What the software ought to take over, she said, is not the addition but this sorting.

Here is the fix. At import, the path splits on whether the paper carries a 16 digit number. If it does, the amount is recorded as input tax and the number is stored on the entry alongside it. If it does not, the amount on the tax line goes into the cost, and the entry screen says in 1 line why. Enter the number later and the amount moves across to the subtractable side. The act of entering the number is itself the grounds for the deduction. A checkbox cannot be that.

We added 1 more thing. The monthly summary now shows 2 figures side by side: tax that can be subtracted, and tax that was paid and cannot. In a test set of books built from our own spending in August, the first was 18,600,000 rupiah and the second 2,180,000 rupiah. The second had never appeared on any screen before, because it had dissolved into the costs.

I think showing that second figure matters. Tax that cannot be subtracted is the price of buying from people who do not issue a faktur pajak. Once you can see that it is 2,180,000 rupiah a month, you can decide to buy the same things from someone who does. While it stays dissolved in the costs it is not something anyone can decide about. Only once it is a figure does it become a choice.

We shipped this wrong for about 6 weeks. What I wrote here on 10 September was about our AI path throwing away input tax credits outside Japan. This time the mistake points the other way: we were creating something that did not exist. When an amount is thrown away the number gets smaller, and someone watching notices. When an amount is created the number gets larger, and nobody complains.

The shape is similar when the country changes. In the Philippines too, subtracting input tax requires a proper invoice or receipt printed with the seller's number and the tax amount. The names and the forms differ, but the thinking is the same: what decides deductibility is not the fact that tax was paid but the document that evidences it. We wrote this branch as a per-country rule, so that what is demanded as the number changes with the country of the books.

For the avoidance of doubt: I am not a tax accountant. Which documents allow a deduction, and which papers are accepted as exceptions, is decided on the regulatory side and it changes. What is written here is not an explanation of any tax system; it is a record of our own software recording tax with no document behind it as tax that could be subtracted. Please confirm the actual treatment with a professional.

One request. Take a look, once, at which pile your own paper landed in on the KAZENA screen. If it landed in the wrong one, tell us. The shape of the paper differs by country and by shop. What we tested with 41 pieces of paper has not yet been tested inside your box.