Mexico’s Fiscal Reform has been approved

On September 14th the fiscal reform package was approved by the Mexican Congress. The main objectives of this reform are to increase revenues by widening the tax base through a regime that is favorable for investment; to fight tax evasion and elusion, as well as making it easier for taxpayers to contribute; to promote a relationship of greater corresponsibility between the Federal and State Governments; and finally to allow for a higher allocation of resources to infrastructure and social spending while at the same time reinforcing expenditure efficiency, transparency and accountability.

The most important item in the tax regime side was the approval of the Unique Rate Corporate Tax (IETU). The IETU is a minimum tax that is compared with the income tax. The rates will be 16.5% in 2008, 17% in 2009, and 17.5% from 2010 onwards. This new tax is calculated as sales minus the value of goods and services used for production minus investment. As such, it allows immediate and full deductibility of investment. The IETU is neutral with respect to employment, since wages and employer social security contributions are creditable against the tax. It is estimated that the Fiscal Reform will result in a significant increase in public revenues. In fact, after the approval, the level of non-oil tax revenues to GDP will attain its highest historical level. The resources from the Reform will be allocated to infrastructure and social development.