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Mexican Congress To Hold Emergency Sitting On Budget

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

18 December 2001


Faced with a deadline of 31st December, the Mexican Congress is set to hold an extraordinary session starting today in an effort to reach agreement on the 2002 budget. The government and opposition are wrangling over spending cuts and a proposed tax increase in the midst of an economic recession. The government's budget proposals were already very tough before falls in oil price expectations forced the Treasury to scale back its expectations for oil revenue 2002 by 20bn pesos ($ 2.2bn).

The centerpiece of the budget is an attempt to increase tax collection from individuals while reducing depedence on oil revenues, but the bill has been stalled in Congress since April over opposition to a proposed 15% value-added tax on food, medicine, school tuition and books. Instead, a variety of alternative taxes has been proposed, including a luxury tax on tobacco and liquor, a capital gains tax on stock market transactions and excise taxes on soft drinks and telephone services.

Now a senior senator from President Vicente Fox's National Action party (PAN) says that agreement has been reached with the two other principal parties in Congress to move food and medicine from the current zero per cent tax bracket to tax exempt. This would bring in an extra 30bn-40bn pesos, but that falls far short of the 118bn pesos the government needs to add to its tax take if it is to balance its books in 2002.

"The government needs an extra 60bn pesos just to keep the 2002 budget at the same level as 2001," said Victor Herrera, Latin America director for Standard & Poor's, the rating agency.


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