Thursday, August 21, 2014

Mexican Supreme Court upholds IVA tax increase in border zone, a keystone of Peña Nieto's fiscal reforms

Guadalajara -
Mexico's highest tribunal, the Supreme Judicial Court (SCJN), today unanimously upheld a controversial fiscal reform which was advanced by the Institutional Revolutionary Party (PRI) administration of president Enrique Peña Nieto after his government took office Dec. 1, 2012.

After preliminary votes of 9-1 and 8-2, judicial ministers finally rejected 10-0 a lawsuit which claimed that last year's increase of the country's value added tax (VAT) in border areas was unconstitutional.

The legal challenge to the increase - which raised the tax on many consumer products in border communities from 11% to 16%, the normal rate levied everywhere else in the nation - was filed last year by a coalition of 172 federal legislative deputies who had voted against the measure in 2013. Rejecting their objections in its ruling, SCJN said the increase was within Congress' power.

Businessmen in the affected region also had demanded a repeal of the increase.

Mexico's has long had a VAT, known here as the Impuesto al Valor Agregado, or IVA, a national excise tax which historically has funded a significant portion of federal government operations in lieu of income taxes.The decision last year to apply an equal rate nationwide was praised by congressional supporters for both fiscal and public health reasons.

Until a few months ago, Mexican oil giant PEMEX - a chronically underperforming and cash starved state monopoly since 1938 - was expected to fund about a third of the federal budget. But the giant hydrocarbon producer was opened to private capital investment and foreign technical participation in December, and its fortunes are already looking up. PEMEX legislation reserves for nation 83% of its proven petrol resources.

In theory, the pressure removed from PEMEX will be replaced by the increased IVA revenues. Experts said last year that raising the rate by 5% in the border zone - where the IVA was purposely kept lower to attract U.S. visitors and border commerce - would generate an estimated 39 billion pesos annually, or about $3 billion USD at today's exchange rate.

Additionally, the same legislative package which established a uniform national IVA extended the tax to products not previously burdened by it, including so-called comida chatarra - snacks, sweets and "junk food" items of low nutritional but high caloric value. Mexico is one of the world's most obese nations, a factor much commented on when the House of Deputies voted for the package last October. But in a January 2014 article, the British magazine The Economist argued the new food taxes have "ended up clobbering the poor." U.K. report: life is getting harder, not easier for Mexicans.

The PRI administration has promised to apply the additional IVA revenue stream to health and social projects, including food programs and pension funds, focusing on the nation's very poorest. In June Mexico's influential Roman Catholic Church called Peña Nieto's tax reforms "deceptive economics," said they were harmful to the middle class and argued that they had discouraged investment incentive, as the nation's economic growth remains all but stalled for the second consecutive year.

Aug. 13, 2014 - Mexican economy remains stuck on a southbound train
Aug. 12, 2014 - Peña Nieto: "No more barriers to our economic growth"

Key decisions of the Supreme Judicial Court reported by MGR:

May 29 - Mexican high court: DNA results are but one element in resolving question of legal paternity
Feb. 27 - Mexican high court awards punitive damages in Acapulco hotel electrocution case
Jan. 16 - Mexican judges: warrantless cell phone tracking is legal

Mexican Supreme Court rejects appeal of co-defendant in U.S. agent's 1985 murder case
Mexican Supreme Court overturns release of Guadalajara Cartel drug lord
Mexican Supreme Court establishes U.S. style property division rules in divorce cases
Mexican Supreme Court rejects HIV discrimination case
Mexican Supreme Court ruling expands abortion rights
Mexican Supreme Court orders Canadian Cynthia Vanier released, on narrow legal technicalities
Same sex marriage arrives at the U.S. Supreme Court - and at the Mexican Supreme Court
Mexican Supreme Court: anti-gay comments are hate speech, not free speech
Mexico's Supreme Court approves polygraph tests for federal prosecutors, with limitations
Mexico's Supreme Court orders Florence Cassez freed

Mexico's Supreme Court takes another step towards nationwide recognition of gay marriage
Mexican Supreme Court hands landmark legal victory to woman almost killed by her boyfriend
Mexican Supreme Court strips military courts of criminal jurisdiction in offenses against civilians
Mexico's high court rejects lie detectors, drug tests, psych profiles for political candidates
Mexico's highest court upholds right of same-sex couples to marry, but only in some states

Mexico's Supreme Judicial Court fails to strike down state anti-abortion laws

© MGR 2014. All rights reserved. This article may be cited or briefly quoted with proper attribution or a hyperlink, but not reproduced without permission.

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