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Column 110413 Wall

Monday, November 4, 2013

Mexico's Impending Fiscal Reforms have 'Gone to the Dogs'

By Allan Wall

The management of taxation is a difficult thing in any country.  It involves a number of competing interests, trade-offs and compromises.

Who do you tax, how do you tax, which sectors are to be taxed?  Is taxation merely a form of government revenue collection or is it also to be used as a method of social engineering?  At what point does taxation become counter-productive?

These are all issues governments have to deal with, and they're never going to make everybody happy.

Ronald Reagan said that "Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it."

Mexico has a tax collection rate of 14% of Gross Domestic Product, lower than the average in Latin America.  However, this is not the result of libertarian tax philosophy, it's due to widespread tax evasion.

What the Mexican government has done for years to make up the shortfall is to use PEMEX, the state oil monopoly as a source of government revenue.  But the constant raiding of PEMEX coffers causes various problems which must be dealt with.  (For more on that topic, see my recent article The Future of PEMEX, Mexico's Petroleum Monopoly, an Ongoing Debate.)

Mexican President Enrique Peña Nieto proposed a fiscal reform that, after being worked over in the Mexican Congress, has been passed by that legislative body.  The reform is set to take effect in 2014.

As might be expected, the measure is a hodge-podge of taxes levied on certain sectors of the Mexican economy, while others get off the hook.  Ordinary Mexicans can expect to pay more in taxes when purchasing various products.

Social engineering is a part of the new fiscal reform.  Mexico now has a high obesity rate. In fact, it has dethroned the United States as the most obese nation in the world. (Given Americans' high obesity rate, that was no mean accomplishment!)

Obesity is now a weighty matter deliberated upon by  Mexico's president and congress.

Coca-Cola has been blamed as one of the culprits for Mexico's obesity.  After all, Mexico is the number one Coca-Cola drinking nation.  The beverage has been referred to jokingly as "the black waters of American imperialism."  Mexican Coca-Cola is sweeter than that sold in the U.S.A.

Coca-Cola is imbibed at meals in Mexico, is sold on the street and seems to be available all over the place.  Even cops taking bribes ask for money "to buy a coke."

The new fiscal reform is slapping a tax increase of one peso per liter on Coca-Cola and other soft drinks for consumers, and an 8% increase on the production end.  Of course, when you tax a company that tax is simply passed on to the company's consumers.

Junk food is to be taxed with an 8% hike at the production end (which of course is passed on to consumers).  How do you define "junk food"?

Mexico now has a legal formula for junk food, based upon the quantity of calories per gram.  Such tasty treats as candy, chocolate, marshmallows and ice cream are included.   

Cigars, however, are free of any tax hike.

A 16% tax hike on chewing gum is to be levied.  How will this affect the boys who hawk chewing gum at stoplights?

Mexico has a vast network of bus service throughout the country, used by the middle and lower classes.  Cross country bus and train travel are to be taxed 16%, but not transport within urban areas.

Private school tuition is not to be taxed as part of the new fiscal regime.

The retail purchase of gold, jewelry, and artistic and ornamental pieces is not taxed if the gold content is 80% or more.

Soccer and baseball games, movies, theater productions and circuses now have new taxes.

Jet fuel, however, is to be taxed 12.40 pesos per liter.  The purchase of a home under a certain value is not to be taxed.

As far as personal tax rates, the highest bracket is 35%.  Earnings from the stock market are taxed at 10%.  Small businesses are allowed a period of ten years to fully actualize into the new system.

To the consternation of pet owners, the new tax law is raising taxes 16% on pet food. It  taxes the sale of pets.

Why?  Because pets are considered a "luxury," as if only rich Mexicans owned them.

Dogs and cats, however, provide their owners with companionship.  And in today's violent crime-plagued Mexico, watch dogs are valuable and can save human lives.

Some have predicted an increase in pet malnutrition and to the abandonment of more pets.

Stray dogs are already a big enough problem in Mexico, including in urban areas.  It's estimated that there are 27 million dogs and cats in Mexico, but of that total 14 million (over half) have no owner and no home.  That's a big health problem, not to mention being  hard on the homeless animals.  Domestic canines, especially, have been bred for millennia to serve mankind and do not do well when turned loose.

But, the canine food tax hike is the law, to take effect with the rest of it in 2014.  Man's best friend's nourishment is to be taxed.

Some families can get around this by feeding their pets scraps from their own tables.  After all, food for people isn't being taxed in the new tax regime.

So Mexican pet owners may just have to calculate which is cheaper - feeding their canines dog food, which has become more expensive, or tossing them scraps of the family meal.  And what food does the dog like?  Our canine friends, after all, have their own likes and dislikes.

Either way, you might say that Mexican fiscal reform has "gone to the dogs."

"It's a dog's life."

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Allan Wall, an educator, resided in Mexico for many years.  His website is located at http://www.allanwall.info/.

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