Hard Times Ahead For Mexico If Tax Reforms Fail In Congress

by Mike Godfrey, Tax-News.com, New York

23 October 2001

Finance Undersecretary, Augustin Carstens, has told reporters that there may be hard times ahead for Mexico if Congress does not approve a controversial tax reform package that it is currently debating.

He said: 'If this reform does not take place in the coming months, spending adjustments to keep public debt within established limits could be very important. This adjustment would have serious impact on the country's growth.'

President Vicente Fox submitted the tax reform package with the aim of kick-starting the economy and widening the tax base by US$12bn in its first year. However, the proposals are thought to contain a controversial measure to introduce a 15 per cent VAT on food and medicines which are currently exempt, and this is holding up the deliberations.

If the reforms are not passed, plans to boost the state oil monopoly Petroleos Mexicanos (Pemex) and the state-run Federal Electricity Commission could be under threat. Carstens said: 'The government's ability to create basic infrastructure to guarantee potential future growth, above all in the energy sector, would be compromised.'

The reform package also contains measures to help Mexico receive an investment-grade rating from Standard & Poor's; however analysts have said that even if the tax reforms were toned down the agency would still be amenable to raising Mexico's rating in the medium term.

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