...Nacional the initiative leaves out the controversial plan to impose a value-added tax (Impuesto al Valor Agregado, IVA) on food and medicines (see SourceMex, 2000-10-11, 2003-01-17, and 2004-08-25). Instead, Calderon's plan proposes to close corporate loopholes and impose a tax on some bank deposits, putting the president at odds with some of the big corporations that supported his presidential candidacy.

Plan seeks to reduce reliance on oil-export revenues

The centerpiece of Calderon's tax proposal is a flat tax (Contribucion Empresarial a Tasa Unica, CETU) of 19%, which would be introduced gradually. Under the plan, companies would either pay the CETU or their normal income tax (Impuesto sobre la Renta, ISR) of 28%, according to a formula included in the proposal. Other major elements of the plan include a 2% tax on monthly bank cash deposits over 20,000 pesos (US$1,850), an IVA on winnings from private lotteries and similar types of contests, and a provision allowing states to impose an IVA on tobacco, alcohol, and gasoline.

The administration says its proposal would increase revenues from sources other than oil exports. "This reform would allow us to generate by 2012...almost 30% more tax revenues than we do at the moment," Calderon said in a speech announcing the plan.

Mexico has struggled for many years to reduce its dependence on oil-export revenues to fund the treasury, primarily by reforming the tax system. At present, Mexico's tax collections are the equivalent of 10% of GDP, the second-lowest rate in Latin America after Guatemala. "There are countries much poorer than Mexico that have revenue streams relative to GDP higher than ours," Finance Secretary Agustin Carstens told reporters in Washington, DC.

The need for Mexico to wean itself from oil-export revenue is more urgent than ever, as supplies at its primary source of crude, the Cantarell oil field, are dwindling rapidly. Reserves at Cantarell, which accounts for more than half of Mexico's crude-oil production, are falling at a much faster rate than projected (see SourceMex, 2007-03-07). The state-run oil company PEMEX has discovered new reserves in the deep waters of the Gulf of Mexico, but these are expensive to extract and would not be available...

NOTE: All illustrations and photos have been removed from this article.




More articles from SourceMex Economic News & Analysis on Mexico
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