CDMX Tax Reform Targets Revenue Growth, Stirs Equity Debate

Recent amendments to property tax regulations in Mexico City have sparked ongoing discussions about broader tax reform. These policy changes aim to boost revenue collection and address economic disparities, but they also raise concerns among property owners and businesses regarding potential financial burdens and regulatory uncertainties.

On Dec. 27, 2024, Mexico City introduced a reform to its Fiscal Code, imposing new obligations on property owners. According to the Official Gazette, taxpayers with properties valued at over MX$4.52 million must submit a detailed report to the city’s finance ministry on the occupancy status of their properties.

While the measure is officially intended to update the city’s cadastral registry for planning purposes, legal experts at Hogan Lovells suggest it may also serve as a tool to reassess property values and increase tax collection. Critics have raised concerns over the lack of clarity in its implementation, warning that non-compliance could result in fines ranging from MX$4,272 to MX$10,821.

Despite its revenue potential, property tax remains underutilized in Mexico. In 2022, Mexico collected just 0.3% of GDP from property taxes, compared to Chile’s 1.22% and Colombia’s 1.53%, according to the Organization for Economic Cooperation and Development (OECD). The OECD recommends a 1.9% target.

The World Bank highlights that stronger property tax collection could reduce municipalities’ reliance on federal transfers, improving local services such as infrastructure, healthcare, and education. However, significant regional disparities persist. In 2023, Mexico City collected over MX$22.9 billion in property tax, while Oaxaca collected just MX$417 million.

Fiscal decentralization is key to addressing these disparities, argue economists consulted by Expansión. Rodolfo de la Torre from the Center for Economic and Budgetary Research (CEEY) notes that limited tax collection exacerbates social immobility, particularly in southern states where only 14% of the population escapes poverty, compared to 41% in the north.

Experts also stress the need for a broader fiscal reform to strengthen Mexico’s revenue system. Juan Manuel Hernández Brito, a tax law specialist, criticizes piecemeal legal amendments for failing to address fundamental issues in tax collection and spending efficiency.

Hernández Brito advocates for a reform focused on improving compliance, broadening the taxpayer base, and supporting small businesses in transitioning from the informal to the formal economy. He also emphasizes the role of government transparency in fostering trust and encouraging tax compliance.

President Claudia Sheinbaum has stated that a major fiscal overhaul is unlikely in the short term. However, experts warn that without reform, Mexico’s tax system may fall short in funding critical public investments and sustaining economic development.