Mexico to evaluate need for tax reform after midterm elections

Mexico's Finance Minister Arturo Herrera gestures as he speaks during an interview with Reuters, at the National Palace in Mexico City, Mexico

Mexico’s government will study the need for a tax reform this year and is talking to regional authorities about their fiscal requirements to see if it is warranted, Finance Minister Arturo Herrera told Reuters on Thursday.

While Mexico has long suffered from a weak tax take, leftist President Andres Manuel Lopez Obrador pledged not to increase the overall tax burden in the first three years of his government, a period which ends in December.

Noting that the coronavirus pandemic had put an extra load on the public health system, Herrera said the tax issue would be taken up after midterm elections in June, offering one of the clearest indications so far that an overhaul is possible.

“What we’ve proposed to the federal states, and we’re working on this with the (state) finance ministers, is trying to imagine where we want the country to be, what resources are needed and thus what we would need to change, because any kind of reform will require some kind of consensus,” he said in an interview.

“We are already entering an electoral process that will be highly competitive … and that will probably prevent us from having an open discussion about this process in the coming months,” Herrera added.

“Right after the elections we will have to assess together, all of us, what the context is and if the conditions allow us to propose any changes to the country’s tax structure.”

Mexico’s tax revenue as a percentage of gross domestic product is the lowest in the 37-nation Organisation for Economic Cooperation and Development. The International Monetary Fund last year proposed that Mexico implement a tax reform to support spending and help its economy recover.

Herrera, who is chairing the board of governors for the IMF and the World Bank this year, has taken steps to modernize Mexico’s tax system by promoting measures to capture the growing sales generated by digital businesses.

The minister also said the government was looking at injecting $1.3 billion-$1.6 billion into state oil company Petroleos Mexicanos (Pemex), confirming a Reuters report.

“The initial support this year is in the order of 1.3 to 1.6 billion dollars,” Herrera said.

Pemex, which has more than $110 billion in financial debt, is one of Lopez Obrador’s priorities

In addition, Herrera said the government is upwardly revising its 2021 growth forecast to 5.0%-5.5%, saying the United States’ $1.9 trillion stimulus package was very important for its southern neighbor’s closely-integrated economy.

In January, his ministry forecast GDP growth of 4.6% this year. The economy suffered its biggest slump since the 1930s last year, shrinking by 8.5% in seasonally adjusted terms.

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