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Economic organisms are urging MPs to promptly discuss and approve amendments to Article 45 of the income tax law.
The amendments grant companies an “exceptional” authorization to revalue their inventory and fixed assets, and to manage exchange rate differences from foreign currency receivables and accounts. They can either recognize gains or losses immediately in taxable income or spread them over several fiscal years to ease the impact on financial results of a single period.
According to economic organisms, the amendments to Article 45 of the income tax law were included in the 2024 budget proposal. However, they were inadvertently neither discussed nor voted on by the Parliament in plenary session.
In this context, an exceptional authorization to revalue their inventory and fixed assets would allow private sector companies to avoid “astronomical and undue” tax burdens caused by price inflation and the dramatic devaluation of the Lebanese pound. It would also help ensure their sustainability and that of their employees.
The Update of the Prices of Stocks
Revaluation is the accounting operation that allows a company to update the value of its inventory and fixed assets listed in its balance sheet, meaning to replace their book value with their market value or fair value. In this respect, it’s worth mentioning that the revaluation surplus corresponds to the excess between the current value of an asset and its net book value.
Revaluing inventory and fixed assets in the current multidimensional crisis, where the Lebanese pound has depreciated by 98%, is crucial for ensuring the accuracy of company financial statements, managing replacement costs effectively, adhering to accounting principles of prudence and matching, and adopting sound risk management strategies and tax obligations.
Tax and Accounting
The tax rationale lies in the fact that fluctuations in the value of inventory, whether positive or negative, impact a company’s “reported profits” and consequently, its tax liabilities.
From an accounting standpoint, ensuring a more precise alignment between costs and revenues in financial statements requires inventory to be evaluated based on its current cost or market value.
Replacement Costs
As for replacement costs, if a company imports goods or raw materials, the devaluation of the Lebanese pound means that these imports have become pricier in local currency terms. Consequently, the replacement cost of current inventory will increase. Similarly, future selling prices will rise due to imported inflation, requiring a reassessment of stocks to reflect the new cost reality.
Judicial Audit
Some observers fear that the revaluation of stocks and assets may be diverted from its initial purpose and used for tax evasion or to conceal abuses perpetrated by certain economic key players, within the framework of state subsidies for the pound’s exchange rate or the purchase of specific consumer products.
To address this concern, they demand the inclusion of the requirement to implement Law 240 of 16/7/2021 into the amendments to Article 45 of the tax law. This law mandates a judicial audit of the accounts of those who have received state subsidies.
