By Dave Graham and Miguel Gutierrez
MEXICO CITY Oct 9 Mexico's government is primed
to water down parts of a proposed tax overhaul that aims to
boost the country's low tax receipts, and may lean on the
country's richest to help make up the shortfall.
President Enrique Pena Nieto hopes to raise Mexico's anemic
tax revenues by around $35 billion by 2018, but political
opposition and intense lobbying by business groups mean sections
of his reform will be sacrificed to push it through Congress.
Last month he proposed raising taxes for higher earners,
putting a levy on stock market gains and boosting social
programs to help the poor, but shied away from widening a
controversial sales tax amid an economic slowdown.
The government is ready to revise unpopular levies on
private schooling and mortgages, said Cesar Camacho, chairman of
the ruling Institutional Revolutionary Party (PRI).
"The PRI is ready to carry out a series of adjustments so
that the fiscal reform can prosper," Camacho said. "We PRI
members agreed ... to push through adjustments to sales tax on
schooling, on mortgage interest payments and housing rent."
"This reform is not only necessary, it is also urgent and
cannot be delayed," he added. Camacho did not say how the
government would offset lost revenue.
Senior lawmakers involved in the talks say a planned carbon
tax is also among the items due to be cut or pared back.
Pena Nieto's tax plan has already fallen short of
expectations, after he opted out of measures such as applying
sales tax to food and medicine that could have broadened the tax
take in Latin America's No. 2 economy.
If efforts to push the bill through founder, it will curb
the government's spending plans and could complicate other
legislation, notably a bill to open up the country's state-run
oil industry to private capital that requires significant
support from opposition benches.
To compensate for reductions in the fiscal reform, various
ideas have been floated, including imposing a higher top rate of
tax and raising more money from stock market transactions.
Income tax is currently capped at 30 percent but the reform
would levy a top rate of income tax of 32 percent on people
earning over 500,000 pesos ($37,900) a year. The proposed reform
also intends to charge a 10 percent rate on capital gains and
dividends on the stock market.
Applying a higher income tax rate on those earning 1,000,000
pesos or more has been floated, and Manlio Fabio Beltrones, the
PRI's leader in the lower house, said potential changes to the
top rate were on the table.
"There are concerns about putting people paying 32 percent
above 43,000 pesos a month on the same level as someone earning
millions of pesos," Beltrones said on Tuesday. "We're looking at
a formula so that there is more progressiveness."
The president has attached the reform to the 2014 budget,
which must be approved by mid-November, and the PRI needs to cut
a deal to pass the bill because it has no majority in Congress.
The lower house must approve the bill by October 20, and
expects to start voting on it next week.
The fiscal reform has created an awkward political balancing
act for Pena Nieto. The smorgasbord of measures seeks to
eliminate taxbreaks and loopholes while raising taxes on
everything from the rich to dog food and sugary drinks.
Upon taking office in December, he sealed a pact with
opposition parties to work together on reforms. But the fiscal
plan and an energy bill presented in August have shown the
limits to which the pact will stretch.
The center-left Party of Democratic Revolution, or PRD,
baulked at Pena Nieto's plans to offer profit-sharing contracts
to oil majors to open up the oil industry.
The conservative National Action Party (PAN) cried foul last
month over the fiscal plan, arguing it would soak businesses and
existing taxpayers without trying to resolve the issue of taxing
the millions of informal workers in Mexico.
"Year in, year out, the formal sector paying taxes is
getting smaller," said Mario Sanchez, a PAN lawmaker who chairs
the economics committee in the Lower House. "(Finding) more
money means those who don't pay now. There's a huge universe in
which to look. And we have to look."
Pena Nieto is counting on PAN votes to push through his oil
industry reform, which proposes constitutional changes requiring
a two thirds majority in Congress. The fiscal package, by
contrast, has been supported more heavily by the PRD.
After the economy suffered a surprise contraction in the
second quarter and teachers launched disruptive protests over a
new education law, the government backed out of widening sales
tax, fearing it could stir up trouble among the poor.
PRI lawmakers are conscious of the gap the lack of extra
sales tax revenues will leave in the accounts of Mexico. Hector
Garcia, a PRI congressman, said the government had not been
aggressive enough in communicating the need to find more money.
"We're going to be well short," he said.