By Miguel Gutierrez, Michael O'Boyle and Dave Graham
MEXICO CITY Oct 31 Mexico's Congress on
Thursday approved a government-backed bill to increase weak tax
revenues but watered down the measure that is expected to have
only a moderate effect on the tax take.
The legislation, which includes higher taxes on the wealthy
and levies on junk food and stock market gains, is a key plank
of an economic program spanning energy to telecoms that aims to
ramp up growth in Latin America's No. 2 economy.
The ruling Institutional Revolutionary Party (PRI) pushed
the bill through with leftist lawmakers, making final tweaks to
slightly weaken a proposal to increase income tax rates.
Conservatives said the bill was a menace to the stumbling
economy and walked out of the Senate in protest when their
attempts to change the plan were ignored by the PRI.
Lawmakers in the lower house of Congress gave final approval
to the tax bill, and President Enrique Pena Nieto is expected to
sign the measures into law.
Analysts viewed the Senate's weakening of the tax reform as
a minor issue, and said it was unlikely to hurt Mexican assets
like the peso currency and bonds.
"The poison is already in the price," said Siobhan Morden, a
Latin American strategist at Jefferies LLC in New York. Markets
had been disappointed at the reform's original scope.
Political spats over the tax plan could complicate efforts
to pass reforms of the telecommunications and oil industries.
The PRI lacks a majority in Congress and is banking on help
from the conservative National Action Party (PAN) to carry out
Pena Nieto's energy reform, which aims to lure investment into
the state-controlled sector and reverse a slide in oil output.
The leftist Party of the Democratic Revolution (PRD), which
gave the PRI enough votes to pass the fiscal reform, opposes
breaking the grip of state oil monopoly Pemex on the industry.
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 high-calorie foods
including chocolate from 5 percent to 8 percent.
The changes made by Congress on Thursday mean the bill will
likely generate less revenues than the government had originally
Before the Senate changes, it was expected to yield added
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.
Mexico has the lowest tax revenue in the 34-nation
Organisation for Economic Co-operation and Development (OECD),
crimping its ability to spend on health, infrastructure and
social programs vital to boosting living standards and growth.
The total Mexican tax take was less than 19 percent of gross
domestic product in 2010, compared with nearly 26 percent for
Turkey, around 31 percent in Greece and 36 percent in Germany,
according to OECD figures.