Mexican Government Submits Tax Reform Proposals
Global Services Tax Alert, July 2007

On June 20, 2007, Mexican President Felipe Calderón submitted a tax reform bill to Mexican Congress with the stated goals of increasing federal tax revenues by 30 percent, breaking Mexico’s dependency on oil revenue, and eliminating tax loop holes and tax evasion. If passed without edits, this bill would significantly change the tax landscape in Mexico. Additional details of the bill as it currently stands are below.

Federal Income Tax Law

The heart of the proposal calls for a new single-rate minimum business tax of 19 percent on gross income less gross deductions (and the “gross” income and deduction terms have yet to be defined). This change would replace the existing Mexican asset tax (which operates much like our alternative minimum tax). Under the proposed reform, companies will be forced to pay the greater of the flat rate of 19 percent of gross income or their income tax as calculated under the previous net income taxation method.

Additional federal income tax law changes in the existing bill include the following:

• A change to the tax applicable to losses on the sale of stock
• An obligation to report loans, contributions for future capital increases, and capital increases in excess of approximately U.S. $60,000.
• Modified calculation of tax on personal salaries and other income, while maintaining the 28 percent single tax rate
• A 20 percent tax on gambling earnings

Other Proposals

• Increase authorities’ powers to inspect companies in consolidation
• A 2 percent tax on bank deposits in excess of approximately U.S. $2,000 per month
• A 50 percent tax on spray paint
• Allow state governments to charge an additional sales tax on products that already carry federal excise tax such as alcohol, tobacco, and fuel
• Other amendments to the Mexican Constitution and tax laws to introduce new taxes and changes to the tax authorities’ inspection powers