BajaNomad

Mexico government aims to tax food, medicine

Bajaboy - 7-26-2013 at 08:57 PM

Breaking taboo, Mexico government aims to tax food, medicine

By Dave Graham and Miguel Gutierrez

MEXICO CITY (Reuters) - Mexico plans to boost its tax coffers by an extra $50 billion a year with an overhaul that aims to extend sales tax coverage, close tax loopholes and could impose charges on capital gains.

Saddled with one of the weakest tax takes in Latin America, President Enrique Pena Nieto will present Congress with a plan by September to substantially improve revenues, including divisive measures to apply value added tax (VAT) to some foods and medicines, according to several people familiar with the plans.

The plans aim to improve Mexico's tax haul by about 4 percentage points of gross domestic product (GDP), according to two senior officials in Pena Nieto's Institutional Revolutionary Party, or PRI.

That would yield nearly an additional $50 billion per year for Mexico.

Food and medicine are now subject to a zero rate of VAT, and the plan currently foresees charging the levy on processed foodstuffs in particular, with a range of staples like milk, eggs, beans and tortillas to be excluded from the tax, the party sources and two other lawmakers said.

Many basic foodstuffs could, however, be moved from a zero rate of VAT to a formal exemption, saving the government billions of pesos a year by closing a loophole that allows producers to reclaim VAT on production costs, said Tomas Torres, a member of the lower house finance committee who is a lawmaker with the Green Party, a PRI ally.

"The reform will seek to suppress special tax regimens, to tax stock market operations and move from zero rates (of VAT) to exemptions," Torres said.

Mexico has long debated whether food and medicines should be subject to VAT. The finance ministry estimates the government loses out on revenues equal to 1.14 percentage points of GDP a year due to the zero rate.

Although Mexico has a balanced budget and optimism about the government's reform agenda is drawing a surge in foreign investment, ratings agencies say the skimpy tax base and oil dependence have been hurdles to a sought-after upgrade, especially as oil output has dropped by a quarter since 2004.

Between 1990 and 2009 Mexico's tax take, excluding state oil monopoly Pemex, fell from 12.7 percent of GDP to 10.7 percent, a 2011 study by Latin American Bank CAF showed. That gave Mexico the worst tax take of the 18 countries CAF studied in Latin America.

In all of the countries surveyed, tax revenues as a proportion of GDP rose during the two decades, apart from in Venezuela and Mexico, the CAF investigation showed.

Tax evasion among small contributors, or those earning less than 2 million pesos a year, was about 96 percent in 2010, costing more than 0.5 percentage points of GDP, according to Mexican tax office data.

Experts estimate Mexico must boost its tax intake by 6 to 8 percentage points of GDP, or about $100 billion a year, to reduce its reliance on oil revenues and fund increased government spending.

While in opposition during 12 years through 2012, the PRI opposed levying VAT on food and medicine when it was proposed by the then ruling conservative National Action Party, or PAN.

After coming to power, Pena Nieto forged a cross-party pact with the PAN and the leftist Party of the Democratic Revolution (PRD) in a bid to push through a wide raft of reforms aimed at boosting annual economic growth to 6 percent.

The PRD has said it would not back VAT taxes on food and medicine.

The PRI does not have a majority in Congress, although it is likely to receive support from PAN lawmakers to win the simple majority needed to pass tax changes. However, in March the PRI changed its party manifesto to enable a change in VAT policies.

Mario Sanchez, a PAN lawmaker and head of the economics committee in the lower house of Congress, said negotiations would show whether his party could reach a deal with the PRI once the bill was submitted, but he struck a positive note.

"I don't think there's a big difference," Sanchez said, referring to the two parties' respective approaches to how to tackle the shortfall in Mexico's tax receipts. "The consultations and proposals are very similar."

The government is also seriously considering proposing raising the top income tax rate to make wealthier individuals and companies pay more, officials said. That could impose a new top bracket as high as 37 percent they said.

The bill will also include incentives to try and draw in more of Mexico's vast informal economy into the tax fold. The Labor Ministry estimates that the government misses out on tax revenue equal to 4 percentage points of GDP due to the size of the informal economy.

(Reporting by Dave Graham and Miguel Gutierrez; Editing by Simon Gardner and Doina Chiacu)
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http://news.yahoo.com/breaking-taboo-mexico-government-aims-...

shari - 7-27-2013 at 06:54 AM

hmmm...tax the rich...sounds reasonable to me...then maybe then they could afford to print up some new fishing licenses

DENNIS - 7-27-2013 at 07:47 AM

Tax the cartels.

chuckie - 7-27-2013 at 08:00 AM

Tax Dennis.:cool:...leave the cartels out of it:lol:

Taxes

bajaguy - 7-27-2013 at 08:07 AM

Tax Carlos Slim....more. He has it, so why not re-distribute his wealth???

DianaT - 7-27-2013 at 08:11 AM

Adding new taxes, especially on items like food and medicine is not going to solve their problem of tax collection. They need help in that area.

[Edited on 7-27-2013 by DianaT]

DENNIS - 7-27-2013 at 08:20 AM

Quote:
Originally posted by bajaguy
Tax Carlos Slim....more. He has it, so why not re-distribute his wealth???


Because he earned it. If he broke any laws in that process, arrest him, then penalize him. :light:

DENNIS - 7-27-2013 at 08:25 AM

Mexico should know by now, taxation isn't the only issue........it's spending, or in this case traditionally, stealing.
There has always been lots of money, but crooks, like Salinas, took it with them.

bajaguy - 7-27-2013 at 08:39 AM

Quote:
Originally posted by DianaT
Adding new taxes, especially on items like food and medicine is not going to solve their problem of tax collection. They need help in that area.

[Edited on 7-27-2013 by DianaT]





Yeah, they need Hacienda to go after all of the unregulated business run by Gringos

DENNIS - 7-27-2013 at 08:44 AM

Quote:
Originally posted by bajaguy




Yeah, they need Hacienda to go after all of the unregulated business run by Gringos


This is epidemic in rural areas like PB, but in town, amongst them, they don't last long. Even the ice cream carts are licensed.

woody with a view - 7-27-2013 at 09:03 AM

so you're telling me i can't open up a GringoDawgs hot dog cart and roam the beaches, without paying tax? sheesh...... another dream squashed!:lol:

DENNIS - 7-27-2013 at 09:06 AM

Quote:
Originally posted by woody with a view
so you're telling me i can't open up a GringoDawgs hot dog cart and roam the beaches, without paying tax? sheesh...... another dream squashed!:lol:


You could in Punta Banda, Woody. This place is lawless.

woody with a view - 7-27-2013 at 09:06 AM

:light:

MitchMan - 7-27-2013 at 09:11 AM

I find it interesting that advertised and listed prices for tangible goods include IVA. That practice has all but eliminated the "visibility" and awareness of the IVA tax. In the USA, our sales tax is much more visible and we Americans usually think of prices for tangible goods as excluding sales tax.

If Mexico starts collecting sales tax on food and medicines, such tax will be masked in the same way by always including the tax in the quoted prices. I think that such practice will sort of hide the tax and make it easier to charge and will be less noticed by the public as time goes on. When public consciousness of such a tax is lessened, it makes it easier for the government to not only tax the public increasingly in that way, but to tax them at a higher sales tax rate with much less public resistance, especially over time.

DENNIS - 7-27-2013 at 09:29 AM

Quote:
Originally posted by MitchMan

If Mexico starts collecting sales tax on food and medicines, such tax will be masked in the same way by always including the tax in the quoted prices. I think that such practice will sort of hide the tax and make it easier to charge and will be less noticed by the public as time goes on. When public consciousness of such a tax is lessened, it makes it easier for the government to not only tax the public increasingly in that way, but to tax them at a higher sales tax rate with much less public resistance, especially over time.



The majority of the public will never know. Consumer prices go up here like the numbers on a slot machine...especially on imported goods, which are fast becoming the only thing available.

Depending on the Peso/Dollar relationship, the prices on these items go up, but they never come down.
WalMart will eventually disappear ever "mom 'n pop" store in the country.........then Mexico will raise tariffs on imports which will be passed to the consumer, and......jeeezo...it hurts to think about it.
Is it beer time yet?




.



[Edited on 7-27-2013 by DENNIS]