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Mexico Closer On Tax Reform

by Mike Godfrey,, Washington

27 August 2007

A key Mexican lawmaker has indicated that the national assembly will approve an important tax reform before this year's budget deadline.

According to a report in the Financial Times, Ricardo Rogríguez, deputy head of the lower house's finance committee and a member of President Calderon's PAN party, all technical details of the long-awaited plan have been "sewn up" and the stage is now set for the legislation to be approved by September 3 and then passed on to the Senate for final consideration.

The reforms, seen as crucial for shoring up the Mexican government's finances while giving the business sector certainty on the tax laws, must be approved by September 8 to go forward into the next budget, or they will face a delay of another year.

According to the document sent to lawmakers, the reforms propose a flat tax on business income, a 2% tax on monthly cash bank deposits of more than 20,000 pesos (US$1,850), and a 20% levy on gaming, as the administration attempts to raise the revenues it need to address poverty and social inequality, and reduce its dependence on oil revenues.

Under the business tax plans, a flat rate of 19% will be phased in, but companies will have the option of paying the flat tax or their income tax, whichever is the highest.

Calderon hopes the reforms will tempt small cash-in-hand businesses into the tax system to help achieve the government's target of increasing tax collection as a percentage of the Mexican economy, which currently stands at 10% - one of the lowest in the Americas - by about 3%. Approximately 40% of Mexico's revenues are collected in taxes paid by the state oil monopoly Petroleos Mexicanos.

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