Mexico's government willing to revise tax plan seen hitting middle class

Reuters News
Posted: Sep 11, 2013 6:25 PM
Mexico's government willing to revise tax plan seen hitting middle class

By Michael O'Boyle and Luis Rojas

MEXICO CITY (Reuters) - The Mexican government said on Wednesday it was open to exploring alternatives to some of the more divisive proposals in a newly unveiled tax overhaul, faced with a growing chorus of resistance to measures that critics say hurt the middle class.

President Enrique Pena Nieto presented the government's tax reform proposal on Sunday. Along with revamps of the energy and telecoms sectors, he wants to unlock Mexico's economic potential by raising taxes for higher earners and imposing a levy on stock market gains.

Pena Nieto shied away from applying a sales tax to food and medicine, which would broaden the range of taxable of goods. Many believe that would be the best way of lifting tax revenues and extracting income from Mexico's large informal sector.

However, political opponents have voiced dismay at measures like taxing private education, ending mortgage rebates and lifting the top income tax rate to 32 percent from 30 percent for those who earn more than 500,000 pesos ($37,800) a year.

Senior officials from Pena Nieto's ruling centrist Institutional Revolutionary Party have acknowledged the concerns.

"We're more than ready to work with ... the finance commission of this lower house to find alternatives that would have less of an impact on the middle classes and families," Finance Minister Luis Videgaray, the architect of the bill, told lawmakers when asked about taxing private education.

The reform, which was weaker-than-expected, aims to increase Mexico's tax revenues by nearly 3 percent of gross domestic product by 2018, and lower the tax burden on state oil monopoly Pemex.

Emilio Gamboa, the head of the PRI's bloc in the Senate, said he expected the bill to be modified as it moves through Congress.

"We support President Enrique Pena Nieto's reform, but it won't come out as it came in," Gamboa said. "Of course, there will be changes," he added, saying taxing education "hurts the middle class".

"We must look after (the middle class), because they are also a motor of the economy ... and I know there are parents who make a great effort to send their children to private school, which hits their salary heavily, and imposing sales tax (on schooling) would really hurt them," he said.

Mexico has the lowest tax revenue in the 34-nation Organization for Economic Co-operation and Development, limiting its ability to spend on health, infrastructure and social programs vital to boosting living standards and growth.

(Writing by Gabriel Stargardter; Editing by Simon Gardner and Christopher Wilson)