A difference between when an item is included in financial income and when an item is included in taxable income is referred to as a Permanent difference.
A permanent difference is one that does not eventually reverse between the tax expense and tax payable due to an item. In other words, the distinction between tax accounting and financial accounting will always exist. A business paying a fine is an illustration of a lasting change.
The effective tax rate will differ from the statutory tax rate due to a permanent discrepancy. Additionally, unlike transitory discrepancies, the permanent difference does not result in deferred taxes because it can never be eradicated.
A permanent change cannot be undone and, as a result, only affects the situation for the time it is present.
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