High Taxes Discouraging Investments in the Mining Sector

President López Obrador said that companies in the mining industry owe taxes to the Mexican government. However, according to CAMIMEX, the mining sector pays more than 50 percent of its profits in taxes and that this is a determent for investments in the sector.

The president invited foreign and national companies to abide by the law and Art. 28 of the Constitution. In March, the DOF published a reform to the first paragraph of Art. 28, which forbids monopolies and tax remissions, reported Infobae.

According to the Ministry of Economy, the mining sector contributes 2.4 percent of the GDP. This year, Mexico placed second with the highest exploration budget in Latin America and the fifth internationally, reported S&P Global Market Intelligence.

Fernando Alanis, former President of CAMIMEX, said to El Heraldo Radio that mining is the sector that pays most taxes. He said that currently the mining sector pays between 52-54 percent of its profits and due to the new fiscal regime, the attractiveness of investments in Mexico is decreasing.

According to data from CAMIMEX, between2016 and 2019, the mining sector paid more than MX$104 billion (US$5.2 billion) in income tax only and over MX$26 million (US$1.3 million) in mining duties. Alanis said that nine years ago, Mexico placed eighth in the list of countries that attract mining investments. However, today the country is in 58th place due to its fiscal regime. In 2019, Mexico’s exploration activities decreased by 25 percent due to additional taxes, reported Infobae.

CAMIMEX presented a recent study comparing the Mexican mining sector to that of other countries like Peru, Chile, Australia, US and Canada. One of the main differences between them was the fiscal regime. It showed that Mexico is the country with the highest tax levels in mining.

Alanis said there is a lack of knowledge about the mining sector. Dialogue with the Mexican authorities is essential to change the misconception of mining. Otherwise, mining activities will decrease, alongside the national economy.

López Obrador’s fiscal regime has created friction between foreign companies and the government. In November, the Federal Court ordered the annulment of the Advance Price Agreement, which since 2012 has allowed First Majestic to pay taxes at a lower rate in Mexico. SAT claims that the Canadian company owes at least US$180.3 million of unpaid taxes between 2010 and 2018, reported MBN.

First Majestic announced the company would appeal against the Federal Court’s decision. The company said it is open to cooperate with the government through diplomatic channels. However, in case the dispute continues, the company will initiate an arbitration process against the country under USMCA.