Tuesday, September 9, 2014

Mexico rolls out low earner tax plan to stimulate anemic economy

"Let's Grow Together" unveiled by PRI administration

Guadalajara -
Mexico, beset by seriously lagging economic growth for two years running, is using every tool at its domestic disposal to stimulate worker productivity and overcome chronic business malaise.

In the Federal District yesterday president Enrique Peña Nieto and his Institutional Revolutionary Party (PRI) team officially rolled out a new program called "Let's Grow Together," designed to get millions of workers out of the "informal sector" - a term for self-employment, where income is not reported to any authority, taxes are not paid and eligibility for many government benefits is never established. Often they are street vendors and home based businesses, which none of the family may ever escape.

The informal labor market holds Mexico back, but yet it is deeply ingrained in the national psyche. Within six months after he took office on Dec. 1, 2012, Peña Nieto announced plans to get more workers on real payrolls. But the problem remains serious in a country where an astounding 60% of the active labor force is so occupied, leaving far too few contributors to the critical federal tax base.

Moreover, workers greatly suffer too. A think thank analysis published this month maintains that virtually all of Mexico's minimum wage earners - they make the equivalent of about $5 dollars a day - are within their ranks. Mexican economy continues to shed jobs.

Noting that la informalidad limits national productivity while simultaneously restraining economic expansion, the government announced yesterday that small businesses which generate revenues of no more than 100,000 pesos annually will be exempt from the payment of value added taxes (IVA in Mexico, VAT in English speaking nations) as well as the IEPS (Impuesto Especial de Productos y Servicios) excise tax.

Both revenue streams are much more than ordinary sales taxes paid by the ultimate end consumer (Jalisco schools face junk food fines - but who will pay?). Rather, any proprietor or business which sells or provides products subject to IVA and/or IEPS levies is required to pay, as merchandise moves down the economic line of distribution. A huge chunk of federal revenues come from such taxes, but now there will be relief for small commercial enterprises earning under the maximum - about $7,700 USD at today's international exchange rate.

The absolute tax holiday will last one year, with deep discounts extending for such taxpayers over the next nine years, long after the current administration is out of office.

Ultimately, of course, the government plans to get more and more citizens on the books, who will begin to pay into the system as their earnings increase. Yesterday it reported that in the last eight months, 8.4 million people have done just that.

"For the majority of micro and small businesses today, the informal economy is synonymous with stagnation, preventing them from training workers to become more productive, acquiring new equipment and placing all at risk for lack of retirement savings and the benefits of a social security system," the administration said yesterday in its official policy statement.

Aug. 13 - Mexican economy remains stuck on a southbound train
Aug. 21 - Mexican Supreme Court upholds IVA tax increase in border zone, a keystone of Peña Nieto's fiscal reforms

Oct. 17 - EPN two for three on reform packages, as Mexico's House of Deputies easily passes tax bill

© 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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