Mexico: Tax Poverty

by Sergio Sarmiento.

In Mexico is a constant, politicians make mistakes but people pay for them.

President Calderon has launched a budget for 2010 that was characterized by a widespread rise in taxes and creating new taxes. If the initiative was passed by Congress, would be a new excise tax of 2 percent above the current 15 percent IVA (Value Added Tax) and that would also apply to food and medicine. The top rate of income tax would increase from 28 to 30 percent. It would raise the excise duty currently charged on beer, cigarettes and alcoholic beverages. Would also apply a new tax of 4 percent to telecommunications such as the internet, pay television and telephony, plus the 2 percent consumer and 15 percent IVA would tax burden in this sector over 21 percent.

The reaction of raising taxes in times of crisis has been typical of the Mexican governments in times of difficulty. In the last major crisis in 1995, Ernesto Zedillo regime raised the VAT from 10 to 15 percent. The government has found at times of economic problems the opportunity to increase their income regardless of whether they leave the national economy prostrate.

These new tax increases are proposed only two years after the republic's government pushed through a "tax reform" was supposed to be final and relieve the public from dependence on oil prices. The reform of 2007, which included a new income tax IETU called, was a failure. So today the government again raising taxes and creating new ones.

To align the IVA on all goods and services at a reasonable rate of, say, 10 percent, it might be beneficial. But the new excise tax of 2 percent above the 15 percent VAT, further complicates the payment of taxes and does not eliminate the technical problems of the zero rate of IVA on food and medicine.

The maximum rate increase of the ISR (Income Tax) becomes a new blow to investment and to work at a time that Mexico needs investment and just work out of the crisis. The special tax increases have distorting effects on markets. The new tax on telecommunications is a brutal blow to the only segment of the economy that is growing. With a tax burden of more than 21 percent will be impossible to increase the spread of the Internet, which is indispensable to have a more competitive economy.

President Calderon said that these taxes are meant to combat poverty. Experience tells us, however, that the only poverty that attacks government spending in Mexico is the bureaucrats and officials and contractors working for the public sector. Meanwhile, the economic impact of this tax increase in times of crisis will be a general impoverishment of the Mexicans.