Mexican lawmakers seek tax plan changes, want 35 pct top rate

Reuters

By Alexandra Alper, Miguel Gutierrez and Dave Graham

MEXICO CITY, Oct 16 (Reuters) - Mexican lawmakers proposedchanges on Wednesday to President Enrique Pena Nieto's plan toboost the country's low tax receipts, urging higher rates fortop earners.

Pena Nieto last month set out a series of measures to raiseannual tax revenues by about $35 billion by 2018, but he isgrappling with stiff political opposition and lobbying frombusiness groups.

He floated the idea of raising income taxes for wealthierMexicans and slapping a levy on stock market gains, a universalpension and unemployment insurance, along with emergencyspending that would force a budget deficit this year and next.

The proposal is a key plank of a wider reform agenda thatPena Nieto hopes will boost growth in Latin America's No.2economy, and also includes measures to tax soft drinks andimpose a carbon charge on polluters.

"We have heard ... proposals from one extreme and the other,and our responsibility is in the middle," said Jorge Herrera, alawmaker with the ruling Institutional Revolutionary Party(PRI).

"There are a great number of elements that have changed fromthe original initiative," he added.

Lower House lawmakers proposed raising the planned top rateon a sliding scale to 35 percent for those who earn more than 3million pesos ($233,100) a year, above the 32 percent that PenaNieto had put forward, according to the draft reform revision.

Those earning over 500,000 pesos a year would pay 31percent, over 750,000 pesos would pay 32 percent, rising to 34percent for those who earn over a million pesos a year.

The Lower House finance committee approved the amendments ina vote late on Wednesday, and the House is likely to back thebill on Thursday. It must then pass through the Senate, which isalso likely to ratify it.

REVENUE SHORTFALL

The lawmakers also proposed keeping a government plan toraise sales taxes in border states, and called for a 5 percenttax on junk food.

The plan also foresees changing a carbon tax and mininglevy. A tax of up to 3 percent of the price of fossil fuelswould be applied, as well as a 7.5 percent tax on mining againstwhich companies can deduct future exploration investments.

The Lower House lawmakers said they were against applyingsale tax on rents, mortgages and property sales or on schoolingcosts, both items that ruling party deputies had said thegovernment was willing to review after a backlash.

Lawmakers estimate the proposed changes will leave thegovernment with a revenue shortfall of between 30 billion and 40billion pesos. The government aims to make up some of the gap byraising its oil revenue forecast.

The conservative opposition National Action Party (PAN),seen as the PRI's most natural ally on economic reforms, is setto vote against the lower house committee's proposal.

"We cannot accompany a retrograde proposal to go back toimposing taxes on the same people as ever, and when .. theyimpose practically confiscatory income taxes," said JorgeVillalobos, deputy leader of the PAN in the Lower House said.

Pena Nieto attached the reform to the 2014 budget, whichmust be approved by mid-November, and the PRI needs to cut adeal to pass the bill because it does not have a majority inCongress.

Many economists and investors were disappointed that PenaNieto did not seek a more comprehensive tax overhaul, and theysaid rising social security and pension costs would requirefurther tax reform in the coming years.

He steered away from imposing a controversial sales tax onfood and medicine as Mexico's economy slows and as he savescapital to push through an overhaul of the energy sector.

"The government defiantly faces challenges in the mediumterm," said Marco Oviedo, an economist at Barclay's Capital inMexico City.

"The topic of public finances will remain pending, and theywill have to address it later in Pena Nieto's term, or in thenext administration."

If the efforts to push the fiscal reform plan throughfounder, it will curb the government's spending plans and couldcomplicate other legislation, including a bill to open thecountry's state-run oil industry to private investment.

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