Tax reforms are necessary because of the innovations that taxpayers have in their activities, taxpayers expect the reforms to update and facilitate the different tax laws, the authority uses them for administrative simplification and to facilitate compliance with the law, also as an instrument to increase the collection. It highlights the reforms applicable to the year 2005, which modify the Income Tax Law (LISR) by deducting the cost of what is sold instead of purchases, the above is applicable to Legal Persons (PM)
To date, most of the PM do not have an adequate inventory control system, cost accounting, in addition to the fact that in Mexico most of the PM are Micro and Small companies.
For a better understanding the changes will be commented.
The first precision is the change suffered by the LISR article 29 the deduction of purchases, labor and manufacturing expenses via cost of what is sold
Second, there is a whole new section III called "Cost of Sold" that comes into effect on January 1, 2005.
Third, the third article of the transitory provisions is incorporated as an alternative to accumulate the inventory as of December 31, 2004 and deduct it again, but now via the cost of what is sold.
This is where the first confusion arises since apparently the previous two articles talk about the same thing but in reality with different rules and procedures.
The new section mentions how the cost of what is sold is integrated, that is, how the accountant will classify the expenditures so that they are deducted, since the fundamental change that the reform seeks is to relocate the time of the deduction, relating the sales made with the outlays that served as the basis for generating said income in the same year.
Therefore, if no income is made, the expenditures made could not be reduced from the taxable base of the LISR.
It also regulates the valuation of inventories that taxpayers have, especially at the end of the year.
We cannot ignore that for the accounting technique (Generally Accepted Accounting Principles "GAAP") there are Valuation Systems and Valuation Methods.
The Valuation Systems are the costs of inventories and the factors that intervene either the costs incurred directly or indirectly in the production of the good or services.
There are two
a) Absorbing Costing
b) Direct Costing
The Valuation Methods apply to both absorbent and direct costing and in general terms refers to the time when the expenditures were made. The recommended ones to use are
a) First entries first exits (peps)
b) Last entries first exits (ueps)
c) Identified cost
d) Average cost
e) Retailer
The regulations themselves recommend that each company should select the system and method that best suits its characteristics, as it can significantly influence the results of its operations.
The changes in the LISR are influenced by the regulations, especially by the C-4 inventories bulletin, the above is known by the Accountants, but not so by lawyers, economists or any other professional who is in the need to interpret the law.
So the question of the managers of the companies is: What is the system and method that I must apply for my tax base? The above, only a specialist in cost management can clarify, so you have to hire their advice.
As for the transitional provisions of the LISR, they represent an alternative to deduct purchases, labor and expenses in 2005 deducted in 2004 or in previous years, for which inventory must be accumulated as income for a period 4-12 years depending on inventory movements in the last three years.
But regardless of the valuation system and method that the company itself had adopted, it must use the inventory valuation method (peps), which represents for many Legal Persons an administrative job that is undoubtedly very complex, the SHCP on December 28 in DOF issued miscellaneous rules where it facilitates not using the method (Peps) would use the acquisition cost of the last purchase in 2004 as long as the stocks for each type of merchandise represent at least 50% of the stocks as of December 31, 2004 of acquisitions from 2004.
Unfortunately, when there are companies with strong inventories from previous years, they still have the obligation to use the Peps method and have the benefit of double deduction, it is recommended to do a study on the feasibility of using the option and it must be resolved no later than February 2005.
So the task of the businessmen and managers of the PMs is to analyze their cost system and method, standardize it with the LISR, train the personnel and complete their feasibility study to pay taxes efficiently.
