Congress Passes Bill Increasing IVA to 16% in Baja

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Lawmakers in Mexico’s lower House last Wednesday passed changes to a tax overhaul plan sought by President Enrique Peña Nieto as a way to boost the country’s low tax take by seeking larger increases in tax rates for top earners.

Last month, Peña Nieto proposed a series of measures to raise Mexico’s weak tax revenues by nearly 3 percent of GDP by 2018.

Several items of Peña Nieto’s proposed reform bill were stripped from the list after strong opposition from business groups and conservatives. Those items included tax on tuition fees at private schools, tax on mortgages and property sales as well as sales tax on rents.

The bill also creates a new 5% excise tax on junk food, such as snacks, chocolates, candies and ice cream.

One item that was left on the bill that will affect Mexican residents of the northern border region that includes the States of Baja California, Baja California Sur and some of Sonora directly is the proposal to raise the IVA tax from 11% to 16%.

Mexico has a value added tax on many products and services, similar to many other places in the world. The tax is commonly referred to as IVA, which stands for Impuesto al Valor Agregado.

In Mexico, IVA is a federal tax, and is applied differently depending on the location in the country. In the border area, which BCS is considered, the value added tax is applied at 11%; everywhere else in the country it is applied at 16%.  Peña Nieto wants all of Mexico to pay 16%. Consumers in BCS should be expecting the price on most products and services in the area to increase.  A 5% tax increase will undoubtedly have a huge impact on many family incomes in the state.

The reform bill must still be passed by the Senate, which is expected to approve the reform by the start of November. It is tied to the 2014 budget, which must be signed off on by mid-November.

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