Effectiveness of government audits of foreign trade in Mexico

By- Cesar Benitez

In accordance with the Tax Administration Service Law, the SAT (Tax Administration Agency) has the authority to collect taxes, contributions, government fees, and their accessories in accordance with the applicable legislation. Under these powers, the SAT has the function of monitoring and ensuring compliance with tax and customs provisions and, where appropriate, exercising the powers of verification. In this sense, there is a commitment by the Tax Administration Agency to improve the cost of compliance with obligations by taxpayers and importers, and also the responsibility to implement programs and projects to reduce their operating costs and improve their tax collection efficiency.

In order to facilitate the evaluation of tax collection efficiency, the SAT developed a methodology to determine the cost-benefit of collection and audit by tax contained in the legislation and established a system that allows evaluating its performance through indicators to measure the efficiency of the results obtained.

Within the matrix of indicators to measure the results of tax collection, the SAT included a key performance indicator that shows the percentage of effectiveness in substantive or in-depth audits of large taxpayers, which is aimed at knowing the degree of success of the audit agency when exercising its powers of verification, to identify a greater number of audits with irregularities, evasions or omissions of taxes by large companies. This indicator is calculated by dividing the total number of in-depth audits that included observations by the total number of in-depth audits, multiplied by one hundred.

Another key performance indicator is the percentage of efficiency of the examination of large taxpayers, which shows the degree of efficiency in audits of large companies, which have resulted in self-corrections greater than one hundred thousand pesos. This indicator is calculated by dividing the total of in-depth audits completed with charges greater than one hundred thousand pesos, by the total of in-depth audits completed with observations, multiplied by one hundred.

The reports published by the Tax Administration Agency for the second quarter of 2022 show that the percentage of efficiency of auditing large companies was 103.5% with respect to the goal for the period, and the percentage of efficiency of auditing foreign trade for the same period was 103.8% with respect to the goal set.

The degree of certainty in the direction and execution of the audits to detect evasions, errors or omissions is not surprising, because since 2016 the Tax Administration Agency has been conducting electronic reviews on specific items and not on the entire operation as it happens in traditional audits. These electronic reviews are possible thanks to a large number of records and transactions available in institutional databases and the implementation of data analysis processes to transform them into useful information on specific concepts of one or more types of taxes.

We should not forget that the consequences of not correcting irregularities can be of great impact for companies, from fines ranging from 130% to 150% of foreign trade taxes omitted or goods confiscated, to the start of a process of cancellation of a VAT certification or the suspension of the import permit.  In any case, the consequences of non-compliance are serious, which is why it is important for companies to carry out a risk analysis of compliance with foreign trade obligations, implement internal measurement and control processes, and involve the management team of the business.

In short, the Tax Administration Agency has incorporated technology into its review processes and has matured its programs to improve collection efficiency.  Knowing the control strategies implemented by the tax authority, it is essential that companies make more efficient use of information systems to have consistent information, incorporate technological tools to automate validation processes, and implement preventive audits of their databases, in order to detect possible deviations or errors, and these can be corrected on time, thus reducing the probability of an audit with findings and penalties.


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