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Mexico's Two Biggest Parties Favor Expanding Sales Tax to Bolster Revenue
Mexican lawmakers from the largest two parties in the lower house of congress said they favor broadening the tax base this year by putting sales levies on products that are currently exempt, such as food and medicine.
Lawmakers for the Institutional Revolutionary Party, or PRI, favor including such measures in the 2011 budget to strengthen public finances amid falling oil output, David Penchyna, one of two ranking members from the PRI on the lower house’s finance committee, said in an interview at Bloomberg’s Mexico City office. The party is the largest in the lower house.
Legislators from President Felipe Calderon’s National Action Party, or PAN, may also expand the sales tax to food and medicine in their budget proposal, which will be separate from the president’s, Carlos Alberto Perez, vice coordinator of the party in the lower house, said in the same interview.
Mexican officials have discussed expanding the tax base for years, and taxing food and medicine has long been a controversial political issue. Last year, Calderon’s plan to tax food and medicine was rejected by lawmakers. Congress instead boosted the sales tax, which excludes food and medicine, to 16 percent from 15 percent and approved higher income taxes.
Calderon must submit to Congress by Sept. 8 his 2011 budget proposal.
‘Deep Reform’
The PRI favors taxing some foods at lower rates and keeping a basket of basic foods exempt in order to reduce costs for the poor, Penchyna said.
“We haven’t had a deep reform in the Mexican fiscal system for many decades,” Penchyna said. “I’m in favor of making this happen in the next legislative period.”
Penchyna declined to say which PRI lawmakers may formally propose the changes. He said there were “many” party members that agreed with the plan.
Investors, economists and ratings agencies have urged Mexico to broaden its tax base to include products and industries that currently get breaks in order to make up for the decline in oil production. Production at state-owned Petroleos Mexicanos, or Pemex, fell on an annual basis every month for almost four years until it rose 1.1 percent in June from a year earlier.
Still, it will be difficult for lawmakers to approve new taxes because disputes among political parties are increasing as the race for 2012 presidential election draws closer and after parties clashed over alliances formed for July 4 gubernatorial elections, Armando Rios, a lawmaker for the opposition Party of the Democratic Revolution, or PRD, said in the same interview.
Tax Loopholes
The PRD, which is the third-largest party in the lower house, favors measures to make budgetary spending more efficient and to cut tax loopholes for industries such as transportation, said Rios, who is one of two ranking members from the PRD on the finance committee.
“We have industries that are privileged and that aren’t contributing what they should be,” said Rios, 37.
In addition to the sales tax proposal, PRI lawmakers also favor including in the budget package measures to boost access to credit and measures to change laws governing development banks, Penchyna said.
The possibility that the PRI may take back the presidency in 2012 gives the party more reason to improve tax laws beforehand, Penchyna said.
2012 Elections
Enrique Pena Nieto, governor of the State of Mexico and a PRI member, is the leading candidate for presidential elections, according to a poll released June 14 by Mexico City-based polling group Consulta Mitofsky.
The 2011 budget will likely call for spending, a deficit, and an expected oil price similar to the 2010 budget if lawmakers don’t pass legislation to change tax law, Penchyna said.
The forecast for the price of oil will probably be between $59 and $70 per barrel, and spending will likely increase in a manner proportional to expected economic growth, he said.
The 2010 budget called for 3.18 trillion pesos ($244 billion) in spending and a deficit of 0.75 percent of gross domestic product excluding debt from Pemex. The deficit, which was 2.8 percent of GDP including Pemex debt, was the largest in more than two decades.
To contact the reporter on this story: Adriana Lopez Caraveo in Mexico City at adrianalopez@bloomberg.net; Jens Erik Gould in Mexico City at jgould9@bloomberg.net
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