Mexico's Congress Deliberates Over Capital Gains Tax

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

22 October 2001

Mexico's congress is considering inserting a 20 per cent capital gains tax on stock market transactions into the government's proposed fiscal reform package. Currently no CGT applies to stock transactions in Mexico, but the opposition Party of the Democratic Revolution (PRD) has been pushing for the tax for some while and has taken the opportunity of the debate over the fiscal reform package to once again raise the issue as a compromise tactic if it agrees to other reforms.

The proposal has always been rejected by President Vicente Fox's National Action Party (PAN) and stock exchange officials have backed him with the argument that it will hinder equity investment in Mexico; but this time may be different as Fox desperately wants his fiscal reforms to go through.

Jose Luis Ugalde, an official of the previous ruling party the Institutional Revolutionary Party (PRI), told Reuters news agency: 'The possibility of taxing stock-market capital is being explored, I've spoken with some deputies who are mulling this and think its a good idea.'

But Luis Pazos (PAN) and president of the lower house's budget committee said: 'With financial globalization, taxing stock would be counterproductive and result in even lower tax income.' And in agreement is Raul Feliz, an economist with the CIDE think tank in Mexico City, who claimed that the CGT would not raise much income for the government because of the limited amount of stock transactions compared to the size of the Mexican economy. 'A capital gains tax is not a very good idea, its income-raising ability would be small,' he commented.

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