Mexico dilutes fiscal reform as plan dodges sales tax

Sun Sep 8, 2013 5:32pm EDT
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By Dave Graham

MEXICO CITY (Reuters) - Mexico aims to increase taxes on higher earners, levy a charge on stock market gains and scrap loopholes, according to a draft of the government's fiscal reform, but it has retreated from widening sales tax amid an economic slowdown.

Applying sales tax to food and medicine is a political hot potato in Mexico, and its omission will dilute the impact of the President Enrique Pena Nieto's reform because it was seen as one of the most effective ways of raising more revenue.

Avoiding that levy, which senior figures in the ruling Institutional Revolutionary Party (PRI) had said looked almost certain, should help take the sting out of street protests led by the left, who say it would be unfair on the millions of poor.

It means much of the social burden for the reform will fall on the middle class, with the top rate of tax rising to 32 percent from 30 percent for those who earn more than 500,000 pesos ($37,800) a year, the draft seen by Reuters showed.

That sparked immediate criticism from the opposition conservative National Action Party, which Pena Nieto has been relying on for support to push through his economic agenda in Congress, where the PRI lacks a majority.

"To put this rate on those earning 500,000 pesos a month is an attack on the middle class," said PAN Senator Francisco Dominguez, who sits on the Senate's finance committee, adding he would not in principle support the bill.

By contrast, the plan, which also includes measures to tax soft drinks, was hailed by Mexico's main leftist party.

The reform aims to increase Mexico's weak tax revenues by nearly 3 percent of gross domestic product (GDP) by 2018 - less than the 4 percent of GDP several senior officials in the PRI had said the government was originally targeting.   Continued...

Mexico's President Enrique Pena Nieto attends the first working session of the G20 Summit in Constantine Palace in Strelna near St. Petersburg, September 5, 2013. REUTERS/Sergei Karpukhin