Change Tax Structure To Increase CompetitivityMon, 10/22/2018 - 16:28
Boosting Mexico’s attractiveness as a mining jurisdiction has become a hot topic in the industry with the competitivity of its tax regime a key focus. According to Adolfo Calatayud, Tax Controversy and Dispute Resolution Lead Partner in Mexico and Latin America at PwC, mining jurisdictions such as Chile and Peru have implemented tax structures that are much more attractive. “Consequently, compared to other jurisdictions in the region, over the last four to eight years, the Mexican industry has experienced a considerable drop in revenue and profit,” he says.
PwC works with many of the largest operators in the market that produce silver, gold and other popular minerals to help them overcome regulatory challenges and guide them through legislative hurdles. “As a firm, we believe in having a multidisciplinary team that not only analyzes proposals but can also anticipate and prevent the impact specific reforms have on the income statements of mining companies,” says Calatayud. “We help them become more efficient and manage challenges such as overdue tax rebates, which is an issue that made headlines in Mexico recently.”
The industry waits for the government to realize the need to modify the tax system to make sure the mining sector can continue to grow. Calatayud believes any changes implemented should consider providing more advantages and incentives to investors. For example, the US is proposing to allow the immediate deductibility of certain expenses. “Widening access to deductibility in Mexico can help attract more capital toward the country. The authorities should also consider a reduction in Mexican income tax as an important first step toward creating a change in the tax regime,” he says. “Lastly, authorities need to be more transparent when it comes to their use of taxpayer money to gain the trust of investors.”
Calatayud believes that any modifications should aim for cost reduction to mitigate the industry's cyclicality. “This remains a priority as the volatility in mineral prices are continuing to push companies to be more efficient with their capital and operational models,” he says. The rise of the digital economy is also a key factor to consider, as it requires companies to comply with electronic invoices and incorporate the use of blockchains along with other new legal requirements.
Calatayud says the digital economy will not only impact mining but will paint the country in broader strokes, across all industries in general. “The government is constantly trying to innovate and increase the level of compliance in the country. The use of the digital economy will help authorities have more control over transactions and the movement of electronic capital,” he says. “But the new requirements and norms will imply a challenge for companies as authorities will become stricter and it will be more difficult to avoid taxes. Adapting to new electronic requirements will be a top challenge throughout the next five years, especially for companies that have over 1,000 transactions per day.”
The use of technology and fintech will not only bring challenges for companies but significant advantages as they will help operators better control revenues and reduce costs. “While Mexico represents about 2 percent of the global mining industry, it has a large amount of potential to grow as the country is rich in minerals and many of its regions have still not been explored,” he says. Technology can contribute to enhancing the country’s logistical infrastructure to improve exportation and importation processes.