Image credits: GM
/
News Article

Industry Leaders Reject SAT’s Proposal to Cut VAT Incentives

By Alejandro Enríquez | Thu, 07/22/2021 - 18:19

The Director of Mexico’s Service Tax Administration (SAT), Raquel Buenrostro, said on an interview that she plans to keep pushing for the elimination of added value tax (VAT) incentives given to automakers. In response, industry representatives have highlighted that this move could hinder Mexico's competitiveness in the automotive sector.

"We are going to depurate all of these (incentives). We have to assess which were given by the government at the time to attract investments, but once those investments were recovered there is no point in maintaining them," said Buenrostro, according to Bloomberg. This, and other tax measures, have the ultimate goal to increase Mexico's tax income by 1 percent of the country's GDP, as reported by MBN. The fiscal benefit Buenrostro is referring to is the "zero rate incentive" which allows vehicle manufacturers to claim reimbursements over the VAT that they pay in the country.

Buenrostro claims that the tax changes will not affect automotive investments in Mexico, but industry leaders disagree. Former leaders of the automotive sector have labeled the measure as "grave" for the industry and in particular for SMEs.

The President of Guanajuato Automotive Cluster (CLAUGTO), Rolando Alaniz, urged authorities to avoid eliminating fiscal incentives to vehicle manufacturers. Instead, he proposed taxing Mexico’s informal trade, which represents  52 percent of trade in the country. "It is very important to solve the country's finances by expanding the taxable base. A good alternative is (to tax) informal business," said Alaniz to media. He also questioned the reasons behind this move. “Why propose this measure to the sector that best delivers to Mexico’s economy?”

The automotive sector represents almost 4 percent of Mexico's GDP and close to 21 percent of the manufacturing GDP. Industry leaders have shared with MBN that the industry contributes approximately more than 2 million direct jobs and between 4-6 million in indirect jobs.

According to Alaniz, the sector generates a surplus of US$90 billion. Guanajuato, the crown jewel of the sector being home to GM, Volkswagen, Toyota, Mazda and Honda, is among the states that could be most affected by this measure. Other relevant regions for auto part and vehicle manufacturers are Aguascalientes, Chihuahua, Jalisco, Nuevo Leon, Puebla, Queretaro, San Luis Potosi, State of Mexico and Tlaxcala.

 

Any changes to taxes will have to be first approved by Buenrostro's boss, the incoming Minister of Finance, Rogelio Ramírez de la O.

Photo by:   GM
Alejandro Enríquez Alejandro Enríquez Journalist and Industry Analyst