The Pact for Mexico (Pacto por Mexico) represents a commitment among the various political parties seeking to carry out structural reforms that will lead to social and economic benefits for Mexico. Within the framework of the Pact for Mexico two important reforms in the energy and tax areas will be submitted for the consideration, review or discussion of Mexico's Federal Congress. Such structural reforms have generated high expectations and active discussion in numerous forums. Mexico's Treasury Secretary Luis Videgaray hopes, barring any rupture in support of the Pact for Mexico, to submit the tax reform initiative to Mexico's Congress during the second half of 2013. What are the fundamental elements that will be included in the long awaited Mexican tax reform? From a tax policy perspective, the reform will seek to provide incentives for further investment, reduction of the informal economy and the creation of mechanisms to eliminate the tax evasion that has caused so much damage to the national economy. The tax reform will surely seek to strengthen the tax collection capabilities of the federal government and will establish principles leading to a fairer tax collection system through reforms of the Mexican Tax Coordination Law (Ley de Coordinación Fiscal). The new tax reform will also likely establish a better division in authority between the federal government and the states of the Mexican Republic. In regard to tax policy at the municipal level, an important restructuring of income sources and, possibly, a restructuring that will allow municipalities to collect taxes more fairly and efficiently through the review of the property tax structure, will be included in the new reform. The reform will seek to eliminate or reduce certain privileged tax categories such as the tax consolidation regime or accelerated tax depreciation for investments on fixed assets. An interesting aspect will be the privileged treatment of the maquiladora export industry. It will be important to avoid discouraging investment in this industry that is so important to Mexico. The new reform will also likely seek to reduce tax subsidies as much as possible. In regard to the treatment of other related tax laws and policies governing taxes on personal property, income and consumption, important structural reforms in the Mexican Income Tax Law (Ley del Impuesto Sobre la Renta) and Value Added Tax (Impuesto al Valor Agregado) are expected. The new reform will likely address the necessity of eliminating the Mexican Single Rate Business Tax (Impuesto Empresarial a Tasa Única or IETU). Thus, even though an approximate 5% reduction in the current 30% income tax rate is expected, companies which distribute dividends will possibly be subject to a higher marginal income tax rate in order to provide an incentive to reinvest company profits. Tax rates on individuals should also change to establish a progressive tax rate system designed to increase as the taxable base amount increases for individual taxpayers. One important aspect to be discussed will be the determination of the point at which the income of companies and individual taxpayers will be considered as taxable income. In all likelihood, such income will accrue, and investments, costs, expenses and other payments will be deductible in accordance with principles of cash flow and not when income and expenditures become due and payable as is now the case. It is expected that the regime governing distribution of company profits will undergo important changes. Policymakers are studying the possibility of establishing a special tax regime for companies and individuals with business activities that generate accrued annual income of less than 20 million pesos (approximately 1.6 million dollars). This regime could be made optional for the taxpayer and could imply a preferential tax rate of around 5% of the total income received, without taking into account any tax deductions or use of tax losses as credits to reduce income tax. In regard to the Mexican Value Added Tax, various aspects will be reviewed such as applying Value Added Tax to food and medications, and the elimination of the 11% preferential rate applicable to taxable transactions occurring in Mexico's border regions. In regard to taxes imposed on international activities, Mexico surely will make some adaptations, but at present it is expected to respect the international tax treaties and conventions to which it is a party. There will surely be many more changes in the long anticipated tax reform, and it is hoped such will create a fair and efficient tax regime for all taxpayers. In the coming months much more will be known about the details of this important legislative initiative.