Mexican Lawmakers Approve Key Tax Reform

by Mike Godfrey, Tax-News.com, Washington

14 September 2007

Mexican lawmakers have passed a key part of a tax reform package that will introduce a minimum flat tax on business, but with a sting in the tail: a new tax on large share deals on the stock exchange.

The finance committee of the lower house of the Mexican assembly announced on Wednesday that it had approved the proposal for a minimum corporate tax of 16.5% in 2008, rising to 17% in 2009 and 17.5% in 2010. This was a central plank of President Felipe Calderon's tax reforms, designed to increase tax revenues as a share of the economy and decrease the size of the 'black' economy.

However, also approved by the finance committee was a proposal to removed tax exemptions on stock sales that involve a change of control of a company, or the sale of more than 10% of a company's stock in a 12-month period. It is thought that this measure has come in response to a public outcry over the tax-free sale of Banamex bank to Citigroup in 2001, which was debated in last year's Mexican presidential election campaign.

Other features of the tax bill approved by the committee included a 2% monthly tax on bank accounts containing more than 25,000 pesos (US$2,250), refundable when account holders pay their federal income taxes.

Calderon hopes the reforms will reduce the size of Mexico's cash-in-hand economy and help achieve the government's target of increasing tax collection as a percentage of the Mexican economy, which currently stands at 10% - one of the lowest in the Americas - by about 3%.

Approximately 40% of Mexico's revenues are collected in taxes paid by the state oil monopoly, Petroleos Mexicanos.

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