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CONGRESS APPROVES REVENUES BUDGET THAT INCLUDES CONTROVERSIAL TAX INCREASES.

Article Excerpt
During the last weekend of October, the Congress ratified a controversial plan to raise consumption and income taxes and impose levies on services such as telecommunications and bank deposits. The new taxes, included in the revenues portion of the 2010 budget (Ley Federal de Ingresos), are part of an effort by the legislature to provide more money for the federal government, which is facing a deficit caused by a decline in oil-export revenues and a slowdown in the global economy. However, the discussions regarding revenues opened wounds that could take some time to heal. The process disrupted party unity in the governing Partido Accion Nacional (PAN) and in the opposition Partido Revolucionario Institucional (PRI), strained relations between President Felipe Calderon's administration and the business sector, and put those business organizations on the same side as the center-left coalition, led by the Partido de la Revolucion Democratica (PRD).

The revenues debate began with the budget plan that Calderon sent to Congress in September. In it, the president offered a generalized 2% tax on consumption of all goods and services (see SourceMex, 2009-09-16). Proceeds from the tax, which would have raised an estimated 70 billion pesos (US$5.2 billion), were to be used to fund social programs. All opposition parties immediately rejected this proposal, saying it would disproportionately hurt lower-income Mexicans.

PRI seeks to pass political cost to governing PAN

While the opposition parties made a lot of noise about not wanting to raise taxes, the PRI eventually became more pragmatic during discussions on a compromise plan in the Chamber of Deputies, the first of the two legislative bodies to debate budget proposals. The PRI and its coalition ally the Partido Verde Ecologista Mexicano (PVEM), which hold a plurality in the lower house, joined members of the PAN on Oct. 21 to craft a budget that raised the value-added tax (impuesto al valor agregado, IVA) by one percentage point to 16% and the Impuesto sobre la Renta (ISR), a type of income tax, by two percentage points to 30%.

Taxes were also added on certain goods and services, such as cigarettes, beer, and telecommunications. The Chamber of Deputies also lowered the ceiling on bank deposits subject to taxation from 25,000 pesos (US$1.190) to 15,000 pesos (US$1,130). Those deposits would be charged a 2% tax, compared with 3% requested by the Calderon administration.

The Chamber of Deputies approved the revenues budget by an overwhelming 415-24 margin, with 10 abstentions. The taxes are expected to give...

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