Remittances Grow Still; Tax Gets Tough

Despite analysts’ suggestions earlier this year, Mexico’s remittances continue rising with Mexicans working abroad increasing the amounts sent home this week as the COVID-19 pandemic rocks the country’s economy. Meanwhile, the national government reinforced its measures against tax avoidance and SAT showed a stunning improvement in the efficiency of tax earnings for every peso spent.

All this and more in the Week in Finance!

Remittances Rise but Long-Term View is Complicated

Remittance amounts being sent home to Mexico by Mexicans working abroad, most of them in the US, rose to 11.1 percent year-on-year and 4.7 percent month-on-month to reach US$3.54 billion in June according to Banxico, El Financiero reports.

The increase in remittances shows the depth of the economic difficulties many millions of Mexicans are facing in the midst of the still-growing COVID-19 pandemic. It also demonstrates the reliance of millions on money sent by friends and family and the need for job generation in many of Mexico’s least developed states. According to the Financial Times, “Mexico now earns more in remittances than it does from foreign direct investment, tourism or oil exports.”

Mexico’s historic 17.3 percent economic contraction in 2Q20 means remittances are needed now more than ever. Though Mexican migration to the US has showed a steadily falling trend over the last 20 years, there has been an increase of Mexicans entering the US, which has seen apprehensions on the US-Mexico border double since February says the Financial Times. At the same time, migrants that have spent decades toiling in the US are ageing and returning home, reports The Economist. Without remittances, millions could see a more complicated future.

Government’s Fight Against Tax Fraud Continues

The Mexican government’s stated fight against fraud took another step forward this week after an agreement was made between SHCP’s Arturo Herrera and Chihuahua Governor Javier Corral. SHCP will work with the state to investigate any suspicious tax activity and to prosecute companies should wrongdoing be found.

In 2016, tax evasion cost the country US$22.7 billion. The MORENA government has moved to stamp out corporate tax evasion and targeted at least 15 large corporations that it says have not paid their taxes. Among these is Walmart, which in May agreed to pay SAT US$390 million.

SAT Doubles Tax-Collection Efficiencies

SAT has doubled its tax returns for every peso it spends, El Economista reported this week. In 2H19, SAT recovered MX$72.5 for every peso it spent while in 2H20, that figure rose to MX$144.5 for every peso spent.

This impressive feat was spear-headed by the institution’s so-called Iron Lady, Raquel Buenrostro, who has gained a reputation for successful pursuits of tax evaders.

Mexico’s huge informal economy remains a giant obstacle in increasing the government’s tax earnings with almost 60 percent of the country’s working population being employed informally. This figure is likely to grow due to COVID-19, which will not help Mexico rise from the last-placed spot it occupies in terms of tax revenue as a percentage of GDP within OECD nations.