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Introduction: Because of all the fiscal leakage from the huge informal economy -not to mention an upper class with clever accountants- tax evasion ranks among Mexico's favourite pastimes. Mexico is Latin America's second-largest economy, but currently it has one of the region's lowest tax-collection rates: Mexico collects taxes worth only 11. 2 percent of its gross domestic product. Countries such as Brazil and Chile collect more than 15 percent, and the United States takes even more. Over the last seven years, oil has accounted for between a fifth and a third of public income. Last year, the Finance Ministry had to cut spending several times to make up for falling oil prices.
Mexico's economics analysts reckoned that, effectively collected, taxes could, in a healthy way, boost government income and ease dependence on oil exports. President Vicente Fox sent to the congress a new tax law initiative that proposed to raise nearly 10 percent of total revenue, by means of applying a Value Added Tax (or IVA, according to its Spanish acronym) rate of 15 % to the sales of food, medicine and press publications; all of which were currently tax-exempted. The reasoning of President Fox's government departs from the position that the fiscal reform will bring, as a consequence, a firmer control in the short term over inflation, in spite of the increase of the IVA; diminutions of credit interest rates, and will reactivate the countrys economy to guarantee a maintained average growth of an annual 7 %, with a consequent constant increase in employment and job creation levels, guaranteeing to increase the standard of living of the population. That sparked outrage among millions of average Mexicans, knocking down Fox's approval rating to about 50 percent from a high of 80 percent, according to independent surveys. Legislators said that the Fox plan would have punished the country's poor, who make up about 40 million of the country's total population of 100 million. The New Taxes and some of the Affected Stakeholders Instead of looking for alternate, more conciliatory, measures to collect the needed resources; lawmakers approved, in a lightning, last minute session, a new tax code that is expected to add about 60 billion pesos to the finance ministry's coffers, half of what the government initially sought to collect in additional revenue when it submitted seven initiatives to revamp Mexico's tax laws in April.
The new tax code pretends to increase the governments budget by imposing the following additional taxes just to name the most insidious-: A 10 percent tax on soft drinks that would apply mainly to drinks made with high fructose corn syrup. A production tax on cigarettes will be raised to 50 percent from 21 percent, with further increases expected to bring the rate by 2004 to 110 percent. A 10 percent tax on telephone services Liquor taxes ranging from 25 percent to 60 percent based on alcohol content. A 3 percent Wage Credit Substitutive Tax on payrolls. Taxes of 20 percent on luxury goods. Such taxes were described as undesirable and designed by political groups, instead of economists; groups that decide who will benefit and who will loose by the 1992 Nobel Prize winner for Economics [Becker 2002 ].
Worker Unions: It is not possible for us to accept such an unfair fiscal system that punishes those workers with less income Unit Nacional de Trabajadores [UNT 2002 ] In my opinion workers income will be punished indeed: some of their benefits will be taxed and they will have to pay more for goods and services. Even those goods and services not affected by the IVA increment will suffer a price increase due to the rise in prices of some of the so called luxury goods (I. E. working boots), public and freight transportation, etc. Some benefits, formerly exempted under other governments as a means to let workers enjoy a higher income without going over taxable limits product of years of union struggles-, will be taxed thanks to the new income tabulations that benefit only the highest-paid 10 percent of workers. Construction Industry: Forced by the new taxes, the construction industry will have to buy and utilize more machinery to replace human labour, incurring into further expenses and debt, and laying off workers.
The Fiscal Reform cannot be qualified as sufficient or insufficient, but as inefficient; overburdening the middle-class economic sector, noted Jorge Cceres Zetina [Cceres 2002 ], president of the Mexican Chamber of Construction Industry, and it was pointed, at the end of one of their weekly meetings, that the construction industry would have to look for new construction processes where less direct labor were utilized, since the wage credit, once subsidized and paid by the government to help promote job creation, will be levied as a new tax. Telephone Companies: Telecommunications industry officials argue that the new tax bill will force companies to halt investment plans in the country's telecommunications infrastructure, generating job losses and slowing Mexico's move into digital communications. A 15 percent value added tax (IVA) is already levied on telephone services in Mexico and the new code will add another 10 percent. In other words a 25 percent tax applies to most local and domestic long-distance services, although it excludes international calls, calls from rural areas, basic Internet access and interconnection fees. Assembly Industry: The maquiladora industry businessmen demand fiscal rules to be clear and permanent; something that Mexico has not provided; if Mexico cannot offer clear and permanent rules many investors will choose to leave for another country, specially to Asia and Central America John Christman, Ciemex-We consultant [Christman 2002 ]. The reform approved last year had a negative impact on the maquiladora industry: The question of Permanent Establishment was not solved.
The Permanent Establishment Regime addresses the nature of the taxes that must be paid in Mexico by U. S. based maculas that also pay taxes in the United States; the status of the rules concerning the application of this regime will remain undefined until 2004, creating an environment of uncertainty; negatively affecting the growth of the already established companies and driving away new investors, who may well give a second thought to the possibility of opening new assembly plants in Mexico. During last year the maculas sector in Mexico lost over 300 thousand jobs, due to the deceleration of the U.
S. economy, and is expected to loose many more thanks to the application of a new tax that will charge employers 3 % of the net worth of payrolls. Restaurants and Bars: Owners and managers fear that many of their regular customers will head for street stands; since they are not licensed by Hacienda (Mexican IRS) because they belong to the informal economy, street stands dont pay -nor charge- any kind of taxes. But restaurants that serve anything stronger than wine now must tax customers at 20 percent -even if they drink only water- or have the customer sign a special tax form, under penalty of perjury, and present tax identity documents before leaving the restaurant.
As many owners pointed the new fiscal measures will only decrease consumption of certain products and increase illicit activities such as liquor smuggling [Garden 2002 ]. I find that the prepared food industry, wounded already by the Mexican economy, will face one or their worse crisis: liquor can be taxed up to 60 percent (depending on its alcohol content) and to dine out is considered a luxurious activity charged with a tax of 20 percent; as a result, suddenly, habitual costumers of restaurants and bars can be charged up to 80 percent of their total consumer...
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Research essay sample on Goods And Services Construction Industry
