| MEXICO CITY
MEXICO CITY Oct 31 Mexico's Senate on Thursday
made new cuts to a tax reform plan that President Enrique Pena
Nieto proposed to increase the nation's anemic tax take, sending
the bill back to the lower house of Congress for final approval.
The bill, which includes higher taxes for the rich as well
as levies on junk food and on stock market gains, is a
cornerstone of a wider economic reform agenda that Pena Nieto is
pushing to lift lackluster growth in Latin America's No. 2
After conservative opponents walked out of the Senate,
refusing to support the legislation, ruling party leaders struck
a deal with leftist lawmakers on changes to income tax rates
that would lower the bill's projected tax take.
Acrimony over the tax plan could complicate efforts to pass
reforms of the telecommunications and oil industries.
Pena Nieto's Institutional Revolutionary Party (PRI) lacks a
majority in Congress and is banking on help from the
conservative National Action Party (PAN) to push through the
energy reform, which aims to lure investment into the
state-controlled sector and help reverse a slide in oil output.
The leftist Party of the Democratic Revolution (PRD), which
has helped the PRI pass the fiscal reform, opposes breaking the
grip of state giant Pemex on Mexico's oil.
In the Senate, PRD and PRI lawmakers agreed to keep the
income tax rate for those earning between 500,000 pesos and
750,000 pesos at 30 percent, not 31 percent as had been
proposed. Higher rates will kick in above 750,000 pesos.
Lawmakers also increased the percentage of workers' benefits
that companies can deduct from their total tax bill. Separately,
the Senate voted to raise a planned levy on junk food from 5
percent to 8 percent, as the PRI had signaled.
The changes to the reform must now be accepted or rejected
by the lower house of Congress.
Early on Thursday, senators approved the main parts of the
bill, which lawmakers say is now likely to reap lower revenues.
Before the Senate changes, it was expected to yield additional
tax income worth 2.7 percent of economic output by 2018.
"Without a doubt it's a decrease in revenues that will mean
a decrease in spending," said PRD Senator Armando Rios Piter,
who negotiated changes to the bill with the PRI.
The PAN pulled out of the Senate debate on proposed
amendments to the fiscal bill earlier on Wednesday after
accusing the PRI of not taking its concerns seriously.
The party was upset when it failed to stop the standard rate
of value-added tax of 16 percent from being extended to states
on the U.S. border that now pay an 11 percent rate.
Once the fiscal reform is passed into law, all eyes will be
on the oil industry overhaul, which aims to bring in fresh
private capital with profit-sharing contracts.
The PAN feels Pena Nieto's model does not go far enough to
attract investment, and lawmakers in the party have pledged to
pressure the PRI into providing greater incentives to oil
companies, such as production-sharing contracts.
That could put the president under attack from leftists who
accuse the government of wanting to sell out Mexico's oil wealth
to foreigners, and could spark large protests.
The PAN may also push the PRI for a more radical electoral
reform aimed at politically weakening the PRI, which held Mexico
in an iron grip for most of the last century.
Earlier this month, the lower house watered down the tax
bill, throwing out measures including plans to apply the sales
tax to rents, mortgages, property transactions and school fees.
At the same time, the PRI, supported by the PRD, modified
the fiscal reform to lift top income tax rates, pushing more of
the burden onto the richest section of society.
Roughly half of Mexico lives in poverty, while much of its
wealth is concentrated in the hands of a few powerful families
like that of billionaire telecoms mogul Carlos Slim.
The top rate of income tax in Latin America's No. 2 economy
is currently 30 percent, but the reform sets out a sliding scale
of higher rates capped at 35 percent for those earning more than
3 million pesos ($233,000) a year.
Tweaks to the tax bill in the lower house in mid-October
created a shortfall in the budget plan for next year.
That prompted lawmakers to raise the government's oil
revenue estimate and make other changes to close the gap. The
tax bill is tied to the budget, which must be approved by