New Luxury Tax Rules Create Confusion In Mexico

by Amanda Banks, Tax-News.com, London

18 January 2002

Reports in the Mexican media have drawn attention to the government's new luxury tax rules, which have created confusion and anger among taxpayers and business groups alike.

The government was recently lauded for its tax reform programme, which although diluted somewhat, still earned the country an investment rating upgrade from international ratings agency, Fitch.

However, Mexican taxpayers are less than convinced, and newspaper reports have pointed to some striking anomalies, which have emerged as a result of the tax reform bill's rocky ride through Congress.

Some of the stranger goods which are now taxed at a higher rate as 'luxuries' include: eels (but not oysters), tin camping plates (but not bone china), scented face creams (but not unscented products), and ankle boots (but not shoes). Restauranteurs who serve anything stronger than water are now obliged to tax patrons at the luxury tax rate of 20% or have them sign a special form and present tax identity documents before leaving the restaurant.

Although the law supposedly came into effect on January 1, rules for its application only became available this Monday, and there remains much confusion.

However, President Vicente Fox, in a speech given last week, blamed the patchy and confusing rules on Congress. 'The executive branch proposes and the legislature follows through. That's democracy,' he commented, neatly passing the buck.

Meanwhile, Jorge Espina, the President of the Mexican Employers Confederation, expressed his disgust at the state of the legislation on Wednesday, saying that the reform is 'the result of last minute agreements and has created a terrible confusion among Mexican society.'

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