By Sandra D. Gaytan
On Sunday September 8th, 2013, the President of Mexico, Enrique Peña Nieto presented his much anticipated fiscal reform program. This proposal, which still has not been approved by the Federal Congress, will have a severe impact on Mexico’s economy.
Tens of thousands of people have already held rallies and demonstrations in Mexico City to reject the governments plans to overhaul the tax system and open the country’s state-controlled oil industry to foreign investors.
But as with any governmental reform program, Peña Nieto’s fiscal plan has its positive attributes and its negatives.
The good news? The new fiscal program does not impose any tax on basic goods or medicines. It will also eliminate the IETU Tax (Flat Rate Business Tax) and the IDE (Tax on Cash Deposits), taxes that are currently in place and that affect the final profit of many companies in Mexico. Public transportation and medical service will also be exempt from IVA.
The fiscal proposal also creates social programs such as unemployment insurance, a high school and university scholarship program and a universal pension program for people over 65 years.
The bad news? Firstly, income tax will go up from 30% to 32%, but only for those physical or moral persons (companies) with an annual income higher than $500,000.00 pesos.
Two new “justified” taxes will be created. The first one is a tax on gas consumption, which will be applied towards solving urgent environmental issues all over the country. The second new tax will be for the consumption of sugary soft drinks, which will be used to fight obesity in Mexico.
Another fiscal change that could affect Baja California Sur (BCS) directly is the proposal to raise the IVA tax in border states from 11% to 16%. Here is BCS, we currently pay an 11% tax on many goods while most of the mainland pays 16% on the same goods.
Raising the IVA tax means that now it will be the same nationwide. This benefit that the border states have had for several years was due to the fact that states such as Quintana Roo, Baja California Norte, and BCS are strategic economic and touristic areas that generate millions of pesos in income every year. Currently, the chambers of commerce and business organizations of these states are fighting against this change that might increase the price on all products and services in the area. A 5% increase will have a huge impact on many family incomes in the state.
However, one of the most worrying downsides of the fiscal reform is the proposal that all real estate property sales and purchases will be subject of paying the 16% IVA tax. This also applies to the interests in mortgage and credit loans. Currently, there is no IVA on real estate sales in the country.
The following products and services may also have consumers paying a 16% IVA tax: Importation (on all manufactured products) and exportation, foreign transportation, tuition on private schools, pet food, public entertainment (except for cinema, theater and the circus), and as funny as it might sound, chewing gum may also be subject to IVA.
Another downside that could affect the annual tax return of companies is that with the new fiscal law, the consumption in restaurants will not be tax deductible and the purchase of new vehicles will only be deductible of up to $130,000 pesos (currently it is up to $175,000 pesos). These two fiscal deductions are currently a great way for businesses to legally lower their taxes.
Lastly, for those who like to invest on the Mexican Stock Exchange, the dividends and profits will be subject to paying a 10% tax to the federal government.
It is important to note that Mr. Enrique Peña Nieto has assured that his proposed changes will increase the GDP by 1.4 percent in 2014 and 3 percent by 2018.
The aforementioned proposal has its benefits and its downsides, therefore if the Federal Congress approves the new fiscal reform plan, totally or in parts, the country will have a number of fiscal changes for the coming year.
Sandra Gaytan is a bilingual Attorney at Law, with an official certification in taxes and is currently working on obtaining her Master Degree in Fiscal Law. For more information please contact her at firstname.lastname@example.org or via cell to 612 157 6019. Website: www.gaytanlegalservices.com