Mexico to Implement Value-Added Tax on Food Purchases, Rate to be Determined by Federal Deputies

Strategic Insights -

A key proposal in Mexico's National Treasury Convention (CNH) document, to be presented to President Vicente Fox on Tuesday, includes the application of value-added tax (IVA) on food purchases. Although the final document will outline a reduced IVA rate of 12% and allow states to charge a 3% sales tax on final purchases, the actual tax rate to be applied to food purchases will be determined by federal deputies. According to Hector Barraza, vice president of the Mexican Congressional Conference of State Legislators, the percentage of the tax was not defined, leaving it up to Congress to determine the rate.

Key Takeaways:

  • The CNH document proposes to apply value-added tax (IVA) on food purchases, a move aimed at generating additional revenue for states and municipalities.
  • The IVA rate on food purchases will be determined by federal deputies, as the original 4% proposal was thrown out last Friday.
  • The document suggests lowering IVA from 15% to 12% and allowing states to charge a 3% sales tax on final purchases, with municipalities receiving 1%.
  • This tax reform is expected to generate an additional $30-40 billion pesos for states and $18-20 billion pesos for municipalities.
  • President Vicente Fox will present the conclusions of the CNH to the public on Tuesday from the National Palace.
  • CNH participants agree that the tax reform aims to benefit states and municipalities, allowing them to collect more revenue.
  • Hector Barraza, vice president of the Mexican Congressional Conference of State Legislators, emphasized that Congress will determine the rate of the tax.

Statistics:

  • IVA rate reduction: 15% to 12%
  • States' revenue: additional $30-40 billion pesos (US$2.64-3.51 billion)
  • Municipalities' revenue: additional $18-20 billion pesos (US$1.58-1.76 billion)
  • Percentage of tax to be applied by states: 3%
  • Percentage of tax to be applied by municipalities: 1%

Sources:

  • El Economista
  • Corporate Mexico by Internet Securities, Inc.
  • COMTEX
  • COMTEX News (http://www.comtexnews.com)