IAS 12 Income Taxes: Key Requirements and Examples

What IAS 12 covers

The standard defines income taxes as all domestic and foreign taxes based on taxable profits. VAT, turnover tax, property tax and social tax are outside its scope: their base is not profit, so they are accounted for under other standards as ordinary expenses or liabilities.

Income tax reporting under IAS 12 has two parts. Current tax is the amount payable for the period under the tax return. Deferred tax is an estimate of the future tax consequences of differences between the carrying amounts and the tax values of assets and liabilities.

Current tax: the amount on the return

Unpaid current tax for the current and prior periods is recognised as a liability; an overpayment is recognised as an asset. It is measured at the amount expected to be paid to or recovered from the tax authorities, using the tax rates and laws enacted or substantively enacted by the end of the reporting period.

In Uzbekistan, the standard profit tax rate under Article 337 of the Tax Code is 15% for taxpayers not listed in the special items of the article. Banks pay 20%, dividend income is taxed at 5%, and certain categories (for example, agricultural producers on profit from their own produce and social sector organisations) have a 0% rate. If a rate change is enacted before the reporting date but takes effect later, it already affects the measurement.

Deferred tax: temporary differences and tax base

A temporary difference is the difference between the tax base of an asset or liability and its carrying amount in the statement of financial position. The tax base is the amount attributed to that asset or liability for tax purposes.

As a general rule, IAS 12 requires a deferred tax liability (DTL) for all taxable temporary differences and a deferred tax asset (DTA) for deductible differences, subject to the recognition conditions. The exceptions to the rule are set out in the standard itself.

• A DTL arises if the company will pay tax when it recovers the carrying amount of an asset or liability — for example, when an asset is carried at a higher amount under IFRS than in the tax records.
• A DTA arises if the company will pay less tax when it recovers the carrying amount, and also when it has unused tax losses or unused tax credits.
• A DTA is not recognised automatically: the company has to support the expectation of future taxable profit against which it can be used.

Where differences come from in local practice

Differences arise because the Tax Code and IFRS follow different rules. Here are several typical examples worth checking when converting financial statements.

• Fixed asset threshold. For tax purposes, a fixed asset is property costing more than 50 BCV per unit and used for more than 12 months (Article 306 of the Tax Code). Under IFRS the company sets its own materiality threshold, so the same item may be depreciated under IFRS but written off differently for tax.
• Depreciation periods and methods. Tax depreciation follows the Tax Code, while book depreciation follows the useful life under IFRS. Different write-off speeds create a gap between the carrying amount and the tax base.
• Provisions and accruals. Provisions recognised under IFRS (for vacations, warranty repairs, expected credit losses) reduce book profit before they become deductible expenses, if the Tax Code does not recognise them until actually incurred.
• Tax losses. The Tax Code allows profit for the current period to be reduced by the full amount of prior-period losses or part of it (Article 333), and only based on the results of the current tax period. An unused loss supports a DTA when sufficient future profit is expected.
• Fair value revaluation. If an asset is revalued under IFRS while its tax base stays the same, a taxable difference arises.

Worked example

A company buys equipment for UZS 120 million. Under IFRS the useful life is 6 years, so depreciation is UZS 20 million a year. Tax write-off is faster, and at the end of the first year the tax base of the equipment is UZS 90 million while its IFRS carrying amount is UZS 100 million.

Taxable temporary difference: 100 − 90 = UZS 10 million. At a 15% rate the deferred tax liability is 10 × 15% = UZS 1.5 million. The income statement shows a deferred tax expense of UZS 1.5 million and the balance sheet shows a DTL. As book depreciation catches up with tax depreciation, the difference and the DTL decrease.

If in the same year the company has a tax loss of UZS 40 million left and the business plan shows profits in the coming years, a DTA can be recognised: 40 × 15% = UZS 6 million. If future profit is uncertain, the asset is not recognised and the amount of the unrecognised loss is disclosed.

Amendments to keep in mind

• In May 2021 the initial recognition exemption (paragraphs 15 and 24 of IAS 12) was narrowed: it no longer applies to transactions that give rise to equal taxable and deductible temporary differences on initial recognition. In practice this means leases and decommissioning obligations — deferred tax is now recognised on them.
• In May 2023 a temporary exception was introduced for deferred taxes related to Pillar Two income taxes, together with targeted disclosures for affected entities — relevant for Uzbek subsidiaries of international groups.

Who needs this in Uzbekistan

IAS 12 applies to everyone who keeps accounts or prepares financial statements under IFRS: companies required to switch to IFRS, subsidiaries of foreign groups and entities that adopted IFRS voluntarily. Presidential Resolution PP-282 of 15.09.2025 introduces the status of public interest entities (PIE): from 1 January of the year following their inclusion in the Register they keep accounts under IFRS and publish IFRS financial statements together with the auditor's report. Companies adopting IFRS voluntarily notify the tax authorities by 1 March of the following reporting year through the taxpayer's personal account.

Differences between national standards and IFRS in general are covered in our article comparing ISA and NAS; here we focus specifically on income taxes.