THE MEXICAN CONGRESS is expected to vote by the end of the month on a tax reform plan that President Enrique Peña Nieto proposed on September 8.
The plan is being heavily lobbied.
It would bar tax consolidation, making it more difficult for a group of affiliated companies to make use of losses in one company to shelter income in other affiliated companies.
It introduces a 10% tax on dividends paid to a nonresident shareholder or Mexican individual. Dividends to Mexican corporations will not be subject to the new dividends tax. The 10% tax is a corporate tax imposed on the distributing corporation and not a withholding tax. Currently, corporations are taxed at a 30% rate, and there is no further tax on the remaining income when it is distributed. The government wants to collect another 10% tax on the remaining 70% of earnings. This would have the effect of increasing the corporate tax rate to 37%. Industry groups are pressing the government to hold the combined tax rate at 35%.
A 16% value-added tax would apply to real estate sales.
The new tax plan would also eliminate a current “flat tax.” The flat tax serves as an alternative minimum tax. It is calculated separately from the regular income tax, and, if the calculated flat tax is higher than the regular income tax, then the difference between the two is added to the regular income tax to determine the taxpayer’s total tax due. The difference is taxed at a rate of 17.5%.
A special 100% depreciation rate for equipment used to generate electricity from renewable resources would also be eliminated.