FACTBOX-Mexico's Calderon asks lawmakers to raise taxes

MEXICO CITY, Sept 8 Tue Sep 8, 2009 10:21pm EDT

Related Topics

MEXICO CITY, Sept 8 (Reuters) - Mexican President Felipe Calderon asked Congress on Tuesday to raise taxes and slash spending on government bureaucracy to prop up public finances as the country languishes in a deep recession. .

Here are some details on the proposals:

NEW SALES TAX

A new 2 percent tax would be levied on all sales, without the exceptions that apply for existing taxes. Food and medicine are currently exempt from the nation's 15 percent VAT tax. Raising taxes on food is very unpopular in Mexico, where about one in five people are so poor they struggle to eat enough.

The new tax would seek to collect around 70 billion pesos ($5 billion) next year.

HIGHER INCOME TAX

The proposal also seeks to temporarily increase the maximum income tax rate to 30 percent from 28 percent at present.

HIKES ON TOBACCO, ALCOHOL, GAMBLING

Taxes on cigarettes, liquor and gambling -- including lottery tickets -- would rise. The proposal suggests adding 80 centavos on a pack of cigarettes, with further rises in subsequent years, and a rise in the tax rate on beer to 28 percent, with further rises in the next few years. Taxes on gambling would jump to 30 percent from 20 percent now, and 3 pesos per liter would be added to the tax on spirits.

HIGHER CASH DEPOSIT TAX

Cash deposits in banks would be taxed further to clamp down on street vendors and small businesses that don't report cash transactions to authorities and avoid taxes. Deposits of more than 15,000 pesos per month would pay a 3 percent tax, an increase from a law passed earlier in Calderon's term that levies 2 percent on deposits of more than 25,000 pesos.

NEW TELEPHONE TAX

A 4 percent tax would be added to public telecoms services, with exemptions for people living in rural areas.

END TO FUEL SUBSIDIES

The government would ease back from its practice of subsidizing fuel.

VAT UNCHANGED

Calderon shied away from making any major proposals to change existing VAT levies, which exempt food and medicine.

Analysts and business chambers want to see the exemption ended to increase the tax base. But increasing this rate is very unpopular among politicians, since the poor spend proportionally more of their income on food and medicine.

NARROWER FISCAL DEFICIT

The government wants a budget deficit equal to 0.5 percent of gross domestic product, down from this year's expected deficit of around 2 percent.

SPENDING CUTS

Calderon wants 80 billion pesos in government spending cuts. Three government ministries - tourism, agrarian reform and the comptroller - will be eliminated, while salaries will remain capped and Mexican embassies will face steep cuts. (To read the latest story on Calderon's proposals, click on [ID:nN08292033]) (Compiled by Michael O'Boyle and Jason Lange)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.