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IMF: Mexico Needs Comprehensive Tax Reform

by Mike Godrey,, Washington

18 October 2019

The IMF has said that a top priority for Mexico should be to raise non-oil tax revenues while making the tax system more progressive.

According to the IMF, Mexico's revenue performance significantly lags behind that of its regional and international peers, with its VAT collection "strikingly weak." The IMF recommended that the Mexican authorities conduct a comprehensive review of the tax system, with a view to rationalizing tax expenditures and broadening the tax base.

In particular, the IMF argued that Mexico should consider amending the VAT system to tax (non-export related) food items at the standard 16 percent rate. It recommended that this process could be staggered and the revenues could be used to provide relief to lower income earners.

The IMF said that, when it comes to income taxes, rationalizing "inefficient and regressive" tax expenditures and widening the top bracket for the highest rate of income tax could boost revenues and improve progressivity within the system. It proposed a reform to property taxes and said that concessionary tax rates for border states should be allowed to expire, saying these distort business decisions and erode the tax base.

The IMF welcomed Mexico's recent steps to improve tax administration through initiatives including the abolition of the right to offset excess VAT credits against other taxes, stronger sanctions for tax evasion, and the closing of tax loopholes. The IMF said that a comprehensive strategy is needed to tackle VAT non-compliance and that integrating income tax and society security administration could reduce tax evasion over the medium term.

TAGS: compliance | tax | value added tax (VAT) | tax compliance | property tax | International Monetary Fund (IMF) | Mexico | tax thresholds | food | tax authority | tax rates | tax reform | individual income tax

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