Volume 5, Number 15, Page 4

From the Editor

Reforms Are Underway

Lic. José Felipe García

During a recent meeting of AmCham Mexico, Treasury Minister José Angel Gurría announced that the Department of the Treasury (SHCP) is advocating amendments to the current tax laws. According to Mr. Gurría, the amendments should increase tax rates gradually on the basis of income. He also indicated that the amendments should be drafted to promote private investment. This move comes about as a result of concern over declining oil prices and their revenues to the Federal Government.

The Mexican Congress has already initiated discussions on possible changes in tax laws. Any change will face challenges, since opinions differ sharply regarding the best method of solving the government’s budget problems. The SHCP believes that the best way to increase government revenues is to raise taxes. Mexican businesses, on the other hand, believe that there is no need to raise taxes, since tax revenues in proportion to the gross domestic product have increased.

The sales tax will be one point of discussion in the Congress. Unofficially, the SHCP would like to impose a sales tax on medicines, food and books. Carlos Garza, president of the Mexican Institute of Public Accountants, believes that imposing a sales tax on such products may not result in increased tax revenues.

At this time, revenue from the sales tax has increased every year. In 1995, the federal government collected $83.9 billion pesos in sales taxes. That figure grew to $86.9 billion in 1996 and to $97.4 billion in 1997. Although these figures suggest that an increase in the sales tax would result in greater revenues for the government, it might only be a short-term increase and merely provide temporary relief from the government’s budget problems.

Mr. Garza is correct in the sense that a hike in tax rates may not in fact increase government revenues. Imposing additional taxes in a weak economy may decrease consumption and promote tax evasion. Recently, while in Mexico, I went to a hardware store. The salesman asked if I wanted an invoice for my purchase; I responded in the affirmative. The salesman then told me that if he gave me an invoice he would charge me sales tax. However, if I did not want an invoice, there would be no sales tax and the hardware store would not have acknowledged the sale to the tax authorities.

Currently, a small number of people and enterprises in Mexico are contributing the lion’s share of the tax revenues. Congress should consider broadening the tax base and lowering rates on individual and corporate taxes. The reasoning is simple: if companies are allowed to keep more of their money, then they will have more money to invest. Investment will create new jobs, and income tax levied against income from these new jobs will bring in more tax revenues.

Labor

On the labor front, it appears that Mexico’s federal labor law will soon be amended. Members from the labor, management and government sectors will meet to discuss several proposed amendments to the labor law. The labor sector will be represented by Francisco Hernández and Antonio Rosado from the UNT, Leonardo Rodríguez from the CTM, Alberto Juárez from the CROC, and Joel López from the CT. The private sector will be represented by the Employers Confederation of the Mexican Republic (COPARMEX).

Both management and labor representatives need to work together in order to ensure that the revisions to the labor law will be successful. Private sector groups have already begun to establish working groups to identify certain issues to be covered in the revisions to the labor law. The labor unions have not yet identified common goals to be achieved in the discussions.

Readers are invited to share their opinions by sending E-mail to the National Law Center for Inter-American Free Trade's Latin American legal discussion list at LAT-LAW@listserv.arizona.edu.