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Pros and cons of the proposed tax reform

By Antonio de Jesús Aguado

The IVA Impuesto al Valor Agregado (valueadded  tax) paid by residents in Mexico is 16 percent. A proposal by President Enrique Peña Nieto to reform the current law, includes, among other things, imposing this tax on realestate transactions, the sale of pets and pet food, chewing gum and sugary beverages (especially soft drinks) and private school tuitions.

The proposed reform also would increase the VAT in the border states, which is now 11 percent. Ricardo Villarreal García, a federal legislator in the PAN party (Partido Acción Nacional) from
San Miguel, said that if Congress approves this reform the PAN legislators might ask citizens to protest the changes.

On September 8, Peña Nieto presented his proposal to citizens, leaders of political parties and entrepreneurs. With this reform the federal government, said Peña Nieto, is trying to
minimize the slow economic growth in the country. They are expecting to collect almost 4.8 trillion  pesos in taxes; the amount collected in 2012 was almost 4 trillion pesos.

The Secretaría de Hacienda y Crédito Público (Tax and Public Credit Department), Luis Videgaray, acknowledged that the economy of the country is not in its best moment and the government
has a duty to try to rectify this to decrease unemployment and increase sales and incomes. Peña Nieto, during his presentation, said that with the new tax reform Mexico will grow and will be a fairer country that offers more opportunities for Mexicans. “This will be a nation where each citizen will be able to have a success story,” he said. In an exclusive interview with Atención, Ricardo Villarreal, secretary of the Commission of Tax and Public Credit in Congress, said that the middle class will be the most affected if the congress approves the reform, and he added that the tourism sector also could be adversely affected.

Some elements of the tax proposal For the first time in Mexican history, those buying, selling or renting property would be obliged to pay taxes, 16 percent plus two percent more for notary and municipal services. Parents who have enrolled their children in private schools would also pay the IVA. Currently, public transportation is tax-free; the reform proposes adding the VAT to travel fares, with the exception of bus travel within the metropolitan, urban or suburban area (depending on the city). In the event the proposal is approved, the 16 percent tax will also be levied on
tickets for public events, with the exception of theatrical performances and the circus. Medicines and food would still not be taxed, but the reform would add the VAT to the purchase of pets and their food; this is because, according to Peña Nieto, those who buy pets and pet food have the means to contribute to the country. Those citizens with incomes above 500,000 pesos would have to pay 38 percent ISR (income tax). As an example, if someone makes 40,000 pesos per month, after taxes their pay would be 28,000 pesos. The price of gasoline, according to the proposal, would keep increasing monthly next year (six cents for regular and eight for premium).

On the other hand, the proposal suggests suppressing taxes on deposits in cash above 15,000 pesos (Impuesto a los Depósitos en Efectivo, IDE) or the IETU, Impuesto Empresarial Tasa Única (taxes that companies and individuals have to pay from their profits, 17.5 percent). This would benefit small and medium-size companies. The reform includes a general pension for all Mexicans over 65, which would guarantee an income for basic services to all those with a salary lower than 15 minimum salaries.

Employees could also have unemployment insurance for a period from one to six months. The reform abuses the middle class The tax reform has generated much debate, including criticism from the political parties in Congress. Villarreal García told Atención that the PAN (which has 140 legislators) does not agree with the proposed tax on tuition, because those who enroll their children in private school are helping the government save money by not using public educational facilities. Villarreal also commented that the VAT on the purchase of pets and their food “is absurd” because people will feed their pets scraps instead, which will not contribute to the economy. He also noted that assessing a tax on the purchase of a pet would
foster illegal sales of animals.

The legislator said that he and his party do not agree with taxing real-estate sales because that would negatively affect the economy, especially here in San Miguel, where the buying, selling and renting of properties are main sources of income. He noted that if they approve the reform San Miguel de Allende’s economy could suffer.

The PAN party, according to Villarreal, completely disapproves of imposing a tax on tickets for public performances. “Culture cannot be made to suffer,” he said, nor should those who love art. “The government should promote culture,” he added.

Finally, Villarreal said that the idea of unemployment insurance and universal pensions has been proposed before by the PAN party.

He invited citizens to talk with federal legislators of the PRI party (Revolutionary Institutional Party) and ask them to vote in favor of Mexicans, not of the system, which has not even guaranteed transparency or anticorruption measures in the management of the public budget.

The deadline for approving the law is October 20. Peña Nieto will need 250 plus one votes to add the VAT. Villarreal said that his party will not make political negotiations with this reform. He said that Mexicans have the constitutional right to protest in the streets peacefully, and if this reform is approved they could call for public protests. “It is a reform that punishes the middle class,” he concluded.

Luis Alberto Villarreal, a federal legislator and coordinator of the PAN legislators in Congress, said on September 12 that the proposal is a crime against the middle class and will not increase the number of contributors or diminish the evasion of paying taxes. He remarked that the PAN members of Congress will defend the citizens.

The reform is a proposal of President Enrique Peña Nieto, a member of the PRI party. Congress is made up of 500 legislators. The PRI has 242 members in
Congress (which means that they would need just nine more votes to approve the law). The PAN party has 140 federal legislators and the PRD (Partido de la Revolución Democrática) has 63. The rest are members of the PT, PANAL, Convergencia and Citizens’ Movement parties.

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