| MEXICO CITY
MEXICO CITY Nov 7 Mexico has room for further
fiscal reform to improve its tax base because a bill passed by
Congress last week still leaves it well behind countries with
stronger revenues, credit ratings agency Standard & Poor's said
Mexico's Congress approved a package of measures last week,
including higher taxes for the rich and levies on junk food and
stock market gains in a bid to increase the country's paltry tax
take, one of the weakest in the Americas.
Before the tax reform was presented in September, senior
officials in President Enrique Pena Nieto's Institutional
Revolutionary Party (PRI) said the aim was to boost revenues by
four percent of gross domestic product.
But the bill that was eventually floated was less ambitious.
And the reform approved is only expected to up the take by
around 2.5 percent of GDP by 2018, the finance ministry said.
The government avoided a political hot potato by not
imposing a sales tax on food and medicine, a measure seen by
many economists as fundamental to strengthening the tax base.
S&P sovereign credit analyst Lisa Schineller, an expert on
Latin America, told Reuters the fact that this was not included
in the reform was a "disappointment."
While such sources of revenue remained untapped, there was
"certainly scope" for further reform, she said.
With the new reform, excluding tax revenue from state oil
monopoly Pemex - which generates about one third of federal tax
income - Mexico's tax take would be only about 13 percent of
GDP, Schineller said.
"That is still a low tax base internationally," she said.
FURTHER REFORM NOT EXPECTED
Schineller said she did not expect Mexico to propose further
reform soon and the Finance Ministry has already played down the
possibility of seeking to widen sales tax during Pena Nieto's
administration, which still has five years to run.
S&P, which rates Mexico one notch lower than other major
ratings agencies at BBB, downgraded Mexico in 2009 after the
previous president failed to widen the country's tax base.
The ratings agency revised up its outlook for Mexico's
sovereign debt in March to positive from stable.
Schineller repeated that any S&P upgrade would depend on the
implementation of the fiscal reform, and a pending bill aimed at
boosting oil production.
That bill, proposed by Pena Nieto in August, aims to open up
the state-controlled oil sector by allowing private companies to
enter into profit-sharing contracts with Pemex.
Lawmakers in the ruling PRI say the reform could still go
further than that, opening up the possibility of
production-sharing contracts to oil majors.
"To the degree that you leave as many options open in the
form of contracts, that is probably more positive," Schineller
Fitch, which rates Mexico BBB-plus, is also of the view that
the new reform cannot by itself dramatically improve Mexico's
"The gap between Mexico's revenue base and that of the BBB
category is still quite substantial," Fitch senior ratings
analyst Shelly Shetty told Reuters earlier this week.
"And no one single attempt at tax reform is going to
materially improve or bridge this gap because the gap is still
quite substantial," Shetty added.