SAT Might Eliminate Tax Incentives for AutomakersBy Cinthya Alaniz Salazar | Wed, 07/21/2021 - 15:56
In the interest of generating federal revenue, Mexico is backtracking on incentives it had used to attract global automakers such as Toyota and General Motors, whom helped the country become the fourth largest auto exporter in the world. According to Raquel Buenrostro, Director of the Mexican Service Tax Administration (SAT), now that the “investment has been recovered, it makes no sense to maintain [the incentives].”
This rollback is part of a bigger financial reform package aimed at increasing the country’s GDP by one percent into the next year, roughly US$12.69 billion. Its objective is to increase tax revenue from large companies such as Walmart; these efforts have already produced a total of US$13 billion since 2019.
Buenrostro aims to present her proposal alongside the 2022 Economic Package in September to the Office of Treasury and Public Credit (SHCP). She explained that this will not be “traditional” tax reform as it does not propose increases, but rather “modifications,” presumably slashing investor incentives. This move comes in tandem with updates to tax laws meant to address tax evasion.
Notably, as part of the proposal, the reform would eliminate the tax exemption “zero rate” that had allowed automakers to demand refunds on the value added taxes they pay in the country, Buenrostro explained. The current model, in conjunction with other tax avoidance strategies, meant that the government would end up owing money to automakers on occasion. “It doesn't make any economic sense,” said Buenrostro.
Buenrostro claimed the tax changes would not affect auto investment in Mexico, quoting an interaction she had with a market actor that threatened to leave the country, but ultimately did not. “The threat is not credible” she shared. “I told him: ‘I don’t know if your matrix is going to be happy that you leave, because we see your numbers, and those numbers are not going to be found anywhere else in the world.’”
SAT is also exploring the possibility of eliminating loopholes that allow manufacturers that export most of their products to avoid paying taxes on products sold in Mexico. She says that Mexico had been left out of multilateral income tax sharing agreements signed by car manufacturers, something which she wants to amend. “We are making an effort to correct all these agreements because we also participate in an important way in the supply chain and we want a proportion of the income tax.”
This announcement comes just after MBN reported Mexico was a regional leader in automation thanks in part to the automotive industry.