Volume 4, Number 35, Page 5

FROM THE EDITOR

--José Felipe García

Fiscal Reform Vote Imminent in Mexican Congress

Mexico's House of Representatives finds itself in an interesting situation in its quest for fiscal reform in 1998. Now that there's a divided Congress, one in which no political party can count on a majority, it will be difficult to reach a consensus.

On Nov. 18, Finance Secretary Guillermo Ortiz appeared before the House of Representatives to try to convince legislators of the opposition parties (unsuccessfully, in my opinion) of the proposed economic program's benefits. The federal government seeks to widen the tax base, and if the economy continues to grow at the current rate, the government would consider reducing tax rates, according to Mr. Ortiz.

Congressman Gerardo Buganza Salmerón, a member of the PAN, argued that the government should spend less money. He also sanctioned his party's position that the VAT should be diminished. The secretary of finance responded by arguing that a decrease of the VAT wouldn't directly benefit the public; he'd rather maintain the status quo. Furthermore, Mr. Ortiz argued that reducing the VAT from 15% to 10% would cause a loss of $6.5 billion pesos that would otherwise be allocated to states and cities.

The PRD also favors lowering the VAT. The PRD's national leader, Manuel López Obrador, met for almost two hours with President Zedillo, during which time he delivered a document describing his party's position on various matters, including economic reform.
The House of Representatives seems to be maturing more quickly than was expected. Partisan feelings have been put aside in an effort to reach a consensus regarding Mexico's tax system reforms. A vote is expected from Congress by mid-December approving or, more likely, reforming the proposed initiative.

A decrease in the VAT and changes in the federal income tax can bring important changes for Mexican and foreign companies alike.

The bottom line? Any lowering of the VAT or the federal income tax will affect the entire population, whether indirectly through fewer benefits brought to bear by states and cities receiving less funds, or directly by paying less money out of their own pockets.