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 News Around the Republic of Mexico | June 2007 
Mexican Congress Gets Calderon Bill to Boost Tax Collections
 Patrick Harrington & Carlos M. Rodriguez - Bloomberg
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| | A rose and a black ribbon are placed near the chair of slain Mexican state lawmaker Mario Cesar Rios during a homage at the local Congress in Monterrey June 13, 2007. Rios, a legislator for the Institutional Revolutionary Party, or PRI, was shot and killed in the busy center of the violent business city of Monterrey, police said, the latest attack in a surge of killings by feuding drug gangs. (Reuters/Tomas Bravo) |
Mexico's Congress will begin consideration today of tax legislation proposed by President Felipe Calderon to boost revenue collection and reduce the government's dependence on oil.
The legislation, released last night in Mexico City and scheduled for a first hearing today by a committee that meets when Congress is adjourned, calls for a flat tax and limits on tax deductions. It also proposes a 2 percent levy on cash deposits of more than 20,000 pesos monthly ($1,863) to fight evasion by small businesses and individuals.
Calderon, lacking a majority in Congress, needs support from the opposition to boost Mexico's tax collection from 10 percent of gross domestic product, the lowest in Latin America after Guatemala. Almost 40 percent of federal revenue comes from taxes paid by state oil monopoly Petroleos Mexicanos.
"There is no guarantee that the fiscal reform will be ready before September," Jorge Estefan Chidiac, president of the finance committee in the lower house, said in an interview yesterday. "This reform is much more complicated than the new pension-reform law."
The bill aims to increase tax revenue by an amount equivalent to 3 percent of gross domestic product, Gustavo Madero, president of the Senate Finance Committee and a member of Calderon's party, said in a telephone interview yesterday.
Mexican bonds rallied as Calderon's ability to get a pension bill approved in March, four months after taking office, heightened expectations he would be as successful with the tax proposal.
'Positive Reaction'
Yields on Mexico's 10 percent peso-denominated bond due in December 2024, the country's most-traded security, have fallen 22 basis points, or 0.22 percentage point, to 7.6 percent since June 13 on expectations opposition legislators will approve Calderon's tax bill.
"Tax reform-related optimism will benefit the long-end of the yield curve," said Arnulfo Rodriguez, head of fixed-income research at Citigroup Inc.'s Banamex unit in Mexico City. "I'm expecting a very positive reaction."
Calderon, speaking to reporters during a tour in Morelia, Michoacan yesterday, said increasing state revenue is necessary to fight poverty. The president said he had been meeting with opposition party members to garner support for the measure.
About half of Mexico's population of 105 million lives in poverty, according to a 2004 government study. One in every five cannot afford to buy food, the study says.
"If we don't make substantial changes in public resources, in the way we spend them and also in the amount of these funds, we probably won't be able to substantially change the condition of poverty of our people," Calderon said, according to the transcript emailed by his office.
To contact the reporter on this story: Patrick Harrington in Mexico City at pharrington8@bloomberg.net. |
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