Effective Income Tax Rate: How to calculate it and evaluate your tax efficiency?

1. What is the effective income tax rate and why is it a key indicator for companies

The effective income tax rate (TEI) is an indicator that shows the actual percentage of tax that a company pays with respect to its pre-tax income. Unlike the legal rate of 29.5%, the TEI reflects the fiscal situation real, influenced by:

• Non-deductible expenses,
• Compensation for losses,
• Temporary and permanent differences,
• Applied or wasted tax benefits,
• Errors in accounting-tax reconcilations,
• Financial structure and use of fiscal shields.

In practice, the TEI is a tool that allows us to evaluate how efficiently a company manages its tax burden and whether or not the tax calculation reflects adequate tax planning and review.

2. How to calculate the effective income tax rate (TEI)

The calculation is simple; the complex thing is to interpret the figure and understand what affects it.

➤ Effective Income Tax Rate Formula

Basic example:

• HUAI: S/N 1,000,000
• IRS for the year: S/ 350,000

A TEI of 35% indicates that the company paid more than the legal rate of 29.5%.
This doesn't always involve error, but it does require a detailed review of your adjustments and deductions.

3. Factors that raise or lower the effective rate of Income Tax

For controllers and counters, understand why The TEI moving away from the statutory rate is more important than the calculation itself.

↑ Factors that can increase TEI

Non-deductible or repairable expenses

• Costs without causality (art. 37 of the LIR).
• Personal expenses charged to the company.
• Fines, penalties, donations not allowed.

Accounting-tax reconciliation errors

• Accounting provisions not fiscally accepted.
• Non-deductible impairment.
• Temporal differences not recorded correctly.

Underutilization of tax credits

• Do not compensate for on-account payments, withholding or favorable balances.
• Do not apply accruable tax losses (System A or B).
• Overestimation of income or underestimation of expenses

Common cases: misinterpreted tax accruals.

↓ Factors that can reduce TEI

Use of tax shields

• Deductible interest, depreciation, amortization
• Mechanisms allowed by LIR and regulations.

Efficient compensation for tax losses

• Especially relevant in post-COVID cycles and reorganizations.

Application of sectoral or special benefits

• Sectors such as agriculture, the Amazon or MYPE may have different rates.

Responsible Tax Planning Strategies

• Without circumvention or artificial maneuvers.

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4. Why the effective rate is an indicator of tax efficiency

The TEI doesn't just measure how much tax a company pays: it measures How do you manage your tax burden.

A TEI:

Too high may indicate:

• errors, wasted deductions, disguised qualms, lack of review.

Very low may indicate:

• tax benefits, cumulative losses, or appropriate financial decisions.

But the most relevant thing is the dynamic comparison:

• With previous exercises,
• With the sectoral average,
• With companies of a similar size,
• With the company's ideal tax structure.

For financial directors, the TEI becomes a tax thermometer that allows them to anticipate risks, validate accounting policies and project financial scenarios.