Mexico reform talks center on taxing food makers

By Jason Lange

MEXICO CITY, April 10 (Reuters) - Negotiations in Mexico for sought-after fiscal reform are centered on making food and medicine producers pay about $8 billion more in taxes, an opposition lawmaker involved in the talks said on Tuesday.

Mexican President Felipe Calderon's conservative party wants to boost government revenue to build more roads and schools, but lacks a majority in Congress despite being the largest force there.

Many economists say directly taxing food and medicine, which are currently exempt, is the easiest way to substantially increase the government's paltry tax take, though politicians in Mexico say that would be too controversial.

So lawmakers from the opposition Institutional Revolutionary Party, or PRI, and possibly from other parties as well, have suggested a way to sidestep the issue: Eliminate about 80 billion to 90 billion pesos in annual tax refunds for food and medicine producers.

Samuel Aguilar, a PRI lawmaker who sits on the lower house finance committee, said his party has been pushing the idea at regular meetings with Finance Minister Agustin Carstens, and the PRI expects Calderon to spin it into his own fiscal reform proposal.

"The finance ministry is (absorbing ideas) like a sponge," Aguilar told Reuters.

He said no agreement had been reached so far, but when asked if there were any other major revenue-boosting proposals on the table, he responded: "Nothing that big."

Calderon needs the PRI to form a majority. The two parties joined forces last month to pass a landmark pension reform law.

Lawmakers on the finance committee from Calderon's National Action Party, or PAN, and from the leftist Party of the Democratic Revolution, or PRD, also said the PRI has been pushing the idea.

"We see it as viable and reasonable," PAN lawmaker Jose Minjares said on Monday.

PRD lawmakers say they have not met with Carstens for tax talks, but don't rule out supporting the proposal.

Food and medicine producers would likely pass on some of their extra tax load to consumers, stoking inflation.

But economists say producers would not be able to saddle all of their extra costs on shoppers, and that some companies will have to accept lower profit margins.

Analysts at Santander have said the measure would be "extremely damaging" to food producers like bread maker Bimbo (BIMBOA.MX) and corn flour maker Gruma (GRUMAB.MX).

Aguilar said Congress plans to approve fiscal reform by Sept. 1.

While the government has said it wants to make the tax system more efficient, widen the fiscal base and cut down on tax evasion, it has kept negotiations private. Carstens was recently quoted by a newspaper as saying a tax reform consensus was growing in Congress.