MEXICO CITY, Sept 7 The Mexican government has
decided against levying a controversial sales tax on food and
medicine as part of a key fiscal reform it will present on
Sunday, officials in the ruling Institutional Revolutionary
Party, or PRI, said on Saturday.
The government is aiming to boost Mexico's weak tax revenues
by around 4 percentage points of gross domestic product (GDP),
and was seriously considering widening the application of value
added tax (VAT) to include food and medicines.
This was viewed as a risky measure politically though
because of the impact it would have on the poor, who make up
roughly half of the population in Latin America's No. 2 economy.
The economy suffered a surprise contraction in the second
quarter, prompting fears higher taxes would drag on an eventual
Recent street protests over other reforms aiming to open up
the oil industry to foreign capital and overhaul a failing
education system undertaken by President Enrique Pena Nieto have
stirred fears of social unrest in Mexico, prompting a more
Earlier on Saturday, Finance Minister Luis Videgaray briefed
some PRI members of Congress on the planned fiscal reform.
Afterwards several PRI officials, speaking on condition of
anonymity, told Reuters that the government had decided to opt
against levying VAT on food and medicine.
Economists say broadening the application of VAT would be
one of the most effective ways of raising tax revenues, and the
PRI in March changed its manifesto to end the party's
longstanding ban on imposing the levy on food and medicine.
The government has never said explicitly it would apply VAT
to food and medicines but had not ruled it out either.