Mexican Tax Reform Wins Investment Grade Prize From Ratings Agency

by Robert Lee, Tax-News.com, London

17 January 2002

Fitch, the international ratings agency, announced on Tuesday that as a result of continued fiscal discipline and the implementation of a fairly substantial tax reform programme, it has upgraded Mexico's long-term foreign currency rating from 'BB+' to 'BBB-'.

This will be welcome news for the country's Finance Minister, Francisco Gil Diaz, who commented last week that the tax reform programme represented 'a step forward' for the Mexican economy.

However, the tax reforms which were eventually passed last week by Congress were substantially diluted, and President Vincente Fox's original plan to impose 15% VAT charges on foodstuffs, medicines, and other zero VAT products was scrapped, as it was believed that it would prove too much of a burden on the country's poorer citizens.

Fitch warned that with a more substantial tax reform package likely to be some way off, Mexico's tax to GDP ratio will remain low in comparison to other investment grade countries, resting at around 13% of GDP for 2002.

The Mexican government believes that the new tax package will yield an additional 1.1% of GDP, but the ratings agency believes that the eventual figure may be somewhat lower, due to tax evasion on luxury goods and excise taxes.

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