| MEXICO CITY, Sept 30
MEXICO CITY, Sept 30 Mexico's Congress is
considering a 4 percent tax on mining output as part of a
fiscal reform package meant to boost government revenues during
a steep recession.
But all the major mining companies in Mexico say the
measure will stifle new investment and burden existing projects
at a time when metals prices have slumped from record highs.
Mexico has one of the lowest tax takes in Latin America and
President Felipe Calderon is trying to pass a controversial
overhaul of the tax system to reduce the country's dependence
on waning oil revenues.
Miners now pay taxes on land concessions that range from 50
centavos ($0.03) to 101 pesos ($7.50) per hectare (2.5 acres),
said Senator Francisco Arroyo, an opposition lawmaker behind
the bill whose proposal could win support from Calderon's
Mexico has long been a top destination for mining
investment with its rich mineral resources and its
The country's major miners including copper giant Grupo
Mexico (GMEXICOB.MX) and Fresnillo, the world's largest silver
producer (FRES.L) owned by Penoles (PENOLES.MX), say they feel
threatened by the proposal for the new law.
"This definitely will halt mining development. Mining is a
global business, investors will go to other countries," said
Grupo Mexico executive Xavier Garcia de Quevedo.
While Mexico will remain attractive, the decision to levy a
tax on production and not sales is counterproductive, said
Rodrigo Heredia, a metals analyst at Ixe brokerage.
"It would seem more appropriate to levy the charges on
sales volume and not on production, since otherwise, the tax
would be levied on the inventory levels that are indispensable
in this cyclical industry," Heredia wrote.
He also said calculating the charge based on the average
publicly-quoted price on the New York Mercantile Exchange,
multiplied by the production volume each month, does not
reflect the reality of the metals market.
Companies "often contract sales for future delivery at the
price of the day the sale is closed, which could be different
from the price on the day in which the goods are actually
physically delivered," he said.
MONEY TO MINING TOWNS
Arroyo said he is open to debate with miners on the
technical issues, but his priority is to ensure more money goes
to mining towns, which are often in poor, isolated areas.
Arroyo, a senator from the Institutional Revolutionary
Party, or PRI, said the bill's aim is not to dramatically raise
the rates miners pay but rather to redistribute funds so local
governments where mines are located.
He said the increase in payments will be partially offset
by tax write-offs on profits.
"We have beautiful mining towns that are falling to pieces
because of neglect," said Arroyo, who is from the state of
Guanajuato where rich mineral deposits have been exploited
since the time of the Spanish conquest.
"I come from a municipality where in my lifetime, I have
seen a lot of wealthy miners and a lot of poor people. That's
how we grew up, my father was a doctor for the miners," he
The PRI became the largest party in the lower house of
Congress, displacing Calderon's conservative National Action
Party, or PAN, after mid-term elections in July.
The party is now key to passing the package of fiscal
reforms being considered by lawmakers as Mexico tries to avoid
a possible debt downgrade by credit ratings agencies worried
about its paltry tax collection.
Most PRI senators are against Calderon's proposal for a 2
percent tax on all sales, including food and medicine.
Arroyo said the mining initiative is separate from the
overall fiscal package, although it will be considered in
conjunction with the other proposed reforms.
He claims to have the support of at least 30 senators,
three of them from Calderon's PAN, seen as more pro-business.
A key PAN senator Juan Bueno, who has played pivotal roles
in the past negotiating government-backed legislative reforms,
said Calderon's party was seriously studying the bill.
(Additional reporting by Miguel Angel Gutierrez; Editing by