Fox Pushes Mexico's Tax Reform, Puts Pressure On State Governors

by Leroy Baker, Tax-News.com, Washington

03 August 2001

Mexican publication, El Economisto, has reported that President Vicente Fox is in discussions with opposition state governors in an attempt to raise support for his plan to introduce a 15 per cent value-added tax on food and medicine to boost revenue. Eight governors from the Institutional Revolutionary Party (PRI) defeated last year by Fox have agreed to meet the President at the weekend for more talks.

The President wants to gain support before Congress meets in September after the summer recess. In order to pay for implementing initiatives to combat poverty and boost education, Fox is looking to increase revenue by reducing the bureaucratic burden involved in tax collection and cutting the actual number of taxes.

Fox, a former Coca-cola executive, has long said that he plans to fight Mexico's social problems with stable economic strength, rather than by handing money to the country's poor, as former Mexican governments have tended to do, enlarging the fiscal deficit and stoking inflation.

It looks as though the President will have to draw on his most persuasive communications skills this weekend. Many politicians have voiced their opposition to his plans saying that the 15 per cent VAT will harm the poor rather than the wealthy which has made it very controversial for the administration. Two union blocs, usually in competition, have agreed to fight the tax and it has been reported that even members of Fox's own party National Action (PAN) have murmured some reservations.

And Manuel Minjares of PAN, co-author of the draft bill incorporating the tax proposals, has admitted: 'The package has been badly sold. It's very difficult to convince the middle class that the main benefits of fiscal reform are that interest rates will fall if the government has less debt.'

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