Tech on Tec

On June 20, 2007, President Felipe Calderón announced a new set of tax provisions intended to increase government revenue. The new laws would address two segments of Mexico’s economy in particular: big business and members of the informal sector. Companies will be expected to pay a minimum tax of about 19%. The government will also institute a 2% tax on all bank deposits of more than 20,000 pesos in an effort to tax the self-employed who rarely pay income taxes.

Currently, the largest proportion of federal funding comes from the state-owned oil company, Pemex. In 2006, oil profits accounted for 40% of the national budget, but declining production and shrinking reserves are forcing politicians to seek alternative sources of revenue. Suggestions that the value-added tax (VAT), a 15% tax to consumer goods, be amended to include food and medicine were dismissed as too detrimental to Mexico’s poor citizens. In December 2006, it appeared the government had found a more acceptable solution with the Chamber of Deputies’ approval of a 5% soda tax proposed by Calderón. However, the Senate voted 73-55 against the measure.

In addition to fortifying the federal budget, many hope this latest attempt at tax reform will signal a change for the better for Mexico’s tax system. Compared to other countries with similar economies, the country’s tax revenue of about 11% of GDP accounts for a strikingly small amount; such low numbers make it increasingly difficult for the government to maintain the infrastructure and to finance much needed social programs. The new laws are intended to make it more difficult for companies and individuals to cheat the system, but some are already thinking of ways to avoid the new rules should they be passed: “When it comes in, I’ll stop putting money in the bank,” said one Mexico City small business owner.