Friday 3 February 2023

Why did retailers stop offering discounts in September?

The fiscal year is the answer. Now the tax cutoff is now in December.

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3 February 2023 - At The Banks - BCCR

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QCOSTARICA – The traditional discounts or “ofertas” in Spanish,  that existed before in September to liquidate inventories due to the fiscal closure were extinguished with the change of fiscal period, which now ends on December 31.

For years September was a month of discounts, offers due to the fiscal year-end, but this was moved to December.

The Ley de Fortalecimiento de las Finanzas Públicas (Law for the Strengthening of Public Finances) of December 2018, ended the fiscal period of October 1 to September 30, which was maintained for many years and was related to coffee harvests and changed to one that coincides with the calendar year, from January 1 to December 31.

Although in the transition it went through an ordinary fiscal period of 15 months, which began on October 1, 2019, and ended on December 31, 2020.

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Therefore, neither in 2020 nor in 2021 were the traditional September ofertas heard due to the liquidation of inventories, which was also joined by the sanitary restrictions due to the pandemic.

Alonso Elizondo, executive director of the Chamber of Commerce, explained that traditionally retailers tried to sell their inventory in September so as not to drag inventories from previous periods into the new fiscal period.

“It was used so that the inventory did not suffer from obsolescence due to dragging the inventory from the previous period,” said Elizondo.

Eduardo Acevedo, ICS Certified Public Accountant, explained that there could also be a tax benefit. “Through inventory management, the entrepreneur can generate tax shields that result in lower taxation. For example, a higher inventory turnover (exit) implies an increase in the cost of sales, and this, in turn, decreases taxable profits,” he explained.

Higher sales also meant higher income, but products were generally sold at a discount, which reduced profit.

Acevedo also indicated that in addition to the fiscal period, the situation for companies changed a lot with the pandemic.

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“Current times are different and the pandemic has negatively influenced economic development, making financial losses in the business sector more frequent, so that a strategy to reduce the tax burden makes no sense if the company is facing loss risk, then in the current situation, it is reasonable that the strategy of the companies is more inclined to recover sales at Christmas time when the consumer’s mood is more prone to consumption, hence the offers and discounts tend to fall,” added the accountant.

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