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Ministry of finance says Mexico may need to increase IVA to counteract US tax reform

Mexico City, Mexico — Talks of an increase in the already high rate of goods and services taxes is in the beginning stages with the ministry of finance.

An increase in Mexico’s IVA, which is currently at 16 percent, is at the negotiating table between the private initiative and the ministry of finance in an attempt to define alternatives to counteract the tax reform in the United States.

Manuel Herrera, president of the Confederation of Chambers of Industry of Mexico says, “There is a debate to raise the consumption tax and reduce the income tax.”

The negotiations hope to reach agreements to modify Mexico’s tax system, so that competitiveness will not be lost due to the changes implemented in the United States, Herrera said.

It is expected that within a few months, the changes that would go in line with increasing consumption taxes in exchange for lowering the income tax, could be announced.

“The private sector is working together with the Ministry of Finance. They are progressing very well and in two or three months we will have something more concrete,” he explained.

At the end of 2017, the US Congress approved fiscal changes which include a lower tax rate for companies and a simplification to the payment of taxes for citizens.

On February 13, the Secretary of the Treasury, José Antonio González Anaya, warned that the fiscal reform in the United States represents a risk for the Mexican economy during 2018, however, he also said that macroeconomic stability will be a buffer to reduce the effect of fiscal changes on the country’s competitiveness.

The official said that the treasury and the private sector are in discussions to review what measures should be taken in Mexico to reduce the effects of the US tax reform. For now, the analysis has focused on the effective rates of the companies.