Political Thermometer

September 11, 2013
Political Thermometer

Taxes have long been a contested issue between Mexico's citizenry and government. The collection of taxes serve as an important source of State power and, when they allow for public spending, taxes enable the State to meet its responsibilities. Taxes are a matter of conflict, debate and controversy, and such play a big role in politics. As a result, the Mexican Constitution contains which govern the rights and obligations of citizens and the framework of organization for the State, and its limits before those it governs. The Mexican Constitution establishes an obligation on all Mexicans to contribute to public spending in a manner that is proportional and fair, in accordance with the rules set forth in Mexican tax law. Nevertheless, and notwithstanding constitutional provisions, the proposed new taxes will cause the political temperature to rise several degrees, as it is up to the Federal House of Deputies to establish the taxes that will cover public spending. The current political debate is focused on the proposed financial reform by the federal government, which includes a controversial tax reform. Beyond the technical issues of the proposal to be reviewed and eventually voted on by the House of Deputies, President Peña Nieto's tax reform was, from a political perspective, surprising, as different proposals were expected from those contained in the recently announced package. Several months ago, the General Assembly of the Institutional Revolutionary Party (PRI) took a decision that appeared to show what was ahead on the question of tax reform. The PRI amended its Bylaws and platform regarding the feasibility of applying value added tax (IVA) to purchases of food and medicine. However, the reform proposed by President Peña Nieto does not provide for amendments to present rules governing the payment of value added tax on purchases of food and medicine. Opposition to the application of value added tax to food amedicine? has been expressed mainly by the left, specifically the Party of the Democratic Revolution (PRD). Given that the extension of the value added tax was not included in the tax reform proposal announced by the President, the PRD actually began to view such proposed tax reform in a positive light. The big change is that while it was believed that there was an alliance between the PRI and the National Action Party (PAN), the alliance on this issues appears to exist between the PRD and the PRI, as both parties oppose the application of value added tax to food and medicine. President Peña Nieto's proposed tax reform is more closely aligned with the ideals of the moderate leftist party, the PRD, than that of the right, embodied by the PAN. The tax reform does include some of the proposals previously raised by the left, such as an increase in Income Tax for high income individuals, the eliminating special tax regimes for certain types of companies, eliminating the Single Rate Business Tax (IETU) and the hated Tax on Cash Deposits levied on funds deposited in Mexican banks. The PAN generally opposes the proposed tax reform arguing that such containes no incentives for increased productivity or growth. Mexico's business sector and upper middle class are not pleased, as they did not expect, nor do they approve of, many of the elements of the proposed tax reform. In this case, it simply happens that the PRI and its opponent the PRD appear to share the same views on reforming Mexico's tax system. With all of this said, the PAN, while angry and generally opposed to the tax reform, is apparently satisfied with the President's proposal for energy reform. It has also been said that, while the energy reform proposal does not provide for stimuli for production or growth, it does intend to establish conditions for social programs, such as universal health care intended to help poorer members of society. As to the tax reform itself, the business sector and upper middle class have shown concern and opposition to the ideals of this reform, which appear to contain a political and social component more than a tax and financial objective. Congress, through the House of Deputies, will have the last word in the debate that will deal with the tax issues, and such debate will be highly political.

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