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Mexico Enacts Tax Reform Package

by Mike Godfrey,, Washington

18 September 2007

Mexico's long awaited tax reform bill - which proposes a minimum tax on business and aims to boost tax revenues for the government - has finally passed Congress, but President Felipe Calderon had to give away some concessions in order to ensure that the key reform was enacted.

After Calderon agreed to reform of Mexico's electoral laws - a matter that had been holding up passage of the reforms - Congress on Friday approved the tax package, the central proposal of which is a minimum corporate tax. Starting at a rate of 16.5% in 2008, this will rise to 17% in 2009 and 17.5% in 2010. This is lower than the 19% tax rate initially proposed by Calderon.

The tax package also includes a 2% monthly tax on bank accounts containing more than 25,000 pesos (US$2,250), refundable when account holders pay their federal income taxes, and removes tax exemptions on stock sales that involve a change of control of a company, or the sale of more than 10% of a company's stock in a 12-month period.

Calderon’s original tax proposal aimed to raise tax collection by 3% of gross domestic product, to about 14%, by the end of his term in 2012, but now the measures have been watered down somewhat, analysts expect tax revenues to increase by about 2.5% of GDP. At 10% of GDP, tax revenues in Mexico are among the lowest in the region.

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