Mexico dilutes fiscal reform as plan dodges sales tax

Sun Sep 8, 2013 10:47pm EDT
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By Dave Graham and Alexandra Alper

MEXICO CITY (Reuters) - Mexico's government on Sunday proposed raising taxes for higher earners, putting a levy on stock market gains and boosting social programs to help the poor, but it shied away from widening a controversial sales tax amid an economic slowdown.

The planned fiscal reform includes a universal pension and unemployment insurance in a country where half the population lives in poverty, as well as emergency spending that will bring on a budget deficit this year and next.

Applying the sales tax to food and medicine is a political hot potato in Mexico, and its omission will dilute the potential impact of the reforms because it was seen as one of the most effective ways of raising more revenue.

Avoiding that tax, which senior figures in the ruling Institutional Revolutionary Party (PRI) had until recently said looked almost certain, should help blunt street protests by leftists who say it would be unfair on the millions of poor.

Much of the social burden for the reform appears to 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 plan presented to Congress showed.

It also closes some tax loopholes and ends some exemptions.

"The reform puts an end to tax privileges that shouldn't exist," President Enrique Pena Nieto said in a speech at the presidential residence as he unveiled his reform proposals.

"The aim is that all taxpayers without exception ... contribute to the country as far as their means will allow."   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