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Mexico Hikes Royalties Tax On Mining

by Mike Godfrey, Tax-News.com, Washington

26 April 2013


Mexico looks set to introduce a new tax on mining companies' profits in a bid to raise the country's tax-to-Gross Domestic Product (GDP) ratio, which remains the lowest among Organization for Economic Cooperation and Development (OECD) member states.

A lower house parliamentary committee endorsed the new law, which would slap a 5% levy on pre-tax mining profits, up from a 4% rate that had previously been under consideration.

Revenues would be used for welfare projects with 20% going to a federal fund for local causes; 50% going directly to provinces' budgets; and 30% allocated to municipalities.

The levy, which remains competitive compared to similar levies in place elsewhere in Latin America, is expected to generate revenues of up to USD500m annually.

Mexico's tax-to-GDP ratio is just 18.8%, far below the OECD average of 33.8%. Compared to other Latin American countries, the tax burden in Mexico is around the median, yet the nation is trailing behind its peers with similar sized economies in the region in terms of broadening the tax base to finance economic development.

According to OECD statistics for 2010, Chile hiked its tax-to-GDP ratio by 2.5%, Argentina by 2%, and Ecuador by 1.7%. Mexico meanwhile had a tax-to-GDP ratio of 20.9% in 2008 but lowered this to 17.4% in 2009, before raising it by just over 1% in 2010.

TAGS: tax | Chile | mining | fiscal policy | law | corporation tax | Ecuador | Mexico | tax rates | withholding tax | Argentina

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