It is very important for the Mexican economy to have a sound and healthy fiscal reform in Mexico. The taxation system prevailing in the country is quite confusing and is not effective. As per estimates, Mexico has tax evasion rate of 10%. Due to this the government in Mexico is compelled to depend upon oil for earnings from the Mexican Petroleum or the PEMEX.
The government in Mexico avails of financial assistance from PEMEX. If this would not have been the case, the same fund could have been used for exploration of oil reserves, utilization as well as processing the same. The World Bank recently conducted a survey and it was found out that system of taxation as well as energy segment in the country needed a revamping altogether.
It has been anticipated by few economists that if Mexico does not make efforts to raise private investment for Mexican Petroleum then the PEMEX is in for trouble.
Fiscal reform in Mexico- Tax Reform
The fiscal reform in Mexico lays stress that the reform measures should be equitable and justified and simultaneously be business friendly. By following this trend, the Mexican government hopes to instill growth in the economy. Mexico is a country where the income distribution is not equal. Some areas in the country are richer than the other parts.
The aim should not bring the rich and not-so rich areas at par. Alternatively, the resources of the rich and powerful may be exploited to assist the poor people of that area. Another problem encountered is that the people belonging to the informal sector seldom pay their taxes religiously and these sects of people have to be made tax payers.
Fiscal reform in Mexico- the original:
The original proposition for the reform had the following three objectives:
- Decreasing the incidence of tax evasion.
- Increase the rate of tax evasion, which is presently only 10 percent of the gross domestic product or the GDP. Among the Latin American nations, this rate is the lowest.
- Public spending of the government is from tax collected from the tax payers. If the collection of tax is at a good rate, public spending quality would also increase.
Fiscal reform in Mexico underwent certain alterations , which further refined the objectives. Fiscal reform in Mexico centered around expanding base of tax payers, reduction in evasion of taxes, ensuring that the Mexican government makes proper use of the public money, channelizing the revenues earned not only for the improvement of oil sector but other sectors as well. Reports reveal that the government intends to raise revenue from non oil sector approximating to 2.8 percent of the gross domestic product or the GDP by the year 2012. Under the new fiscal reform in Mexico, the states have been empowered with the right to impose sales tax.
Fiscal reform in Mexico has undergone changes as listed below. In the above paragraphs, we have seen what the original reform was. The present reform was based on the original one. The proposed reform is likely to be highlighted in the budget of 2008.
Fiscal reform in Mexico- reformed:
- Gasoline was imposed with a new tax of 5.5 percent.
- PEMEX’s new fiscal regimen
- A new corporate tax (CETU) has been introduced and a transitional period for the same has been launched.
First reform alterations:
Some of the firms in Mexico have been asked to offset a portion of fixed asset investment of the year 2007 against CETU. CETU or the corporate tax in Mexico has a flat tax rate.
The CETU or the corporate tax would be charged at the rate of 16.5 percent in the coming year. The rate would however go up to 17.5 percent by the year 2010.
Second reform alterations:
The tax, which the government in Mexico receives from PEMEX presently, would be reduced to a considerable extent. Reports reveal that tax cuts worth USD$2.7 billion would be provided by the legislation in the year 2008. The tax cut figure is reckoned to escalate to USD$5.4 billion, four years from now.
Third reform alterations:
The final fiscal reform in Mexico comprises the tax imposed on gasoline. The tax would be charged by the federal government in Mexico. The earnings from the tax would be assigned to the municipalities as well as the governments at the state level.
The revenues earned, which would be in excess would be assigned for the following purpose:
- More expenses for societal needs
- Bringing about modification in the pension system of the country.
- Various infrastructural projects would be financed by the same.
Under the tutelage of Calderon, the economy has displayed remarkable improvement. Earlier, there were few problems, which were regarded as incurable. However, the administration has proved otherwise. This only implies that with a good as well as efficient administrative body, much could be done regarding economic growth in Mexico.
Last Updated on : 26th June 2013