Oct. 29 (Bloomberg) -- Mexico’s second-largest party in the Senate, known as the PRI, plans to abstain from voting on increasing the sales tax to 16 percent from 15 percent, as the chamber delayed a vote to ratify tax and budget legislation.

The Senate failed to vote on the 2010 budget package, which includes measures to raise sales and income taxes, as lawmakers spent the day debating their stance on the bills in internal party meetings. The Senate had planned to vote today.

Lawmakers will probably approve the sales tax increase before their Oct. 31 deadline even if the PRI abstains, said Gabriel Casillas, chief economist at JPMorgan Chase & Co. in Mexico City. State governors want the additional revenue and there are few other options to boost public finances, he said.

“I don’t think they have many alternatives,” Casillas said.

Lower house lawmakers on Oct. 21 approved a diluted version of the income portion of President Felipe Calderon’s 2010 budget and his proposal to raise taxes, which was designed to avert a credit rating downgrade as revenue and oil output fall.

A finance ministry official involved in negotiations with lawmakers, who declined to be identified by name, said Mexico’s Senate will probably approve a 1-year increase in the sales tax instead of the indefinite increase approved by the lower house.

The National Action Party, known as the PAN, can approve the sales tax increase even if the PRI abstains because it is the largest party in the Senate, Casillas said.

Still, PAN Senator Jose Isabel Trejo said the party was analyzing alternatives to plug the gap in public finances in case the sales tax isn’t approved. Trejo is head of the finance committee in the Senate.

The Senate must vote to ratify the legislation and send it back to the lower house for final approval, which must happen by Oct. 31. The spending part of the bill must be approved by Nov. 15.

To contact the reporter on this story: Jens Erik Gould in Mexico City at jgould9@bloomberg.net

Last Updated: October 29, 2009 19:04 EDT