AMLO Strikes Down Corporate Tax Waivers

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With a stroke of his pen, Mexican President Andrés Manuel López Obrador (AMLO) on Monday, May 20, eliminated tax waivers for big Mexican corporations that they had enjoyed since year 2000.

The tax waivers were perfectly legal. They  had been awarded by former Presidents Vicente Fox and Felipe Calderón, and sustained by Enrique Peña Nieto. In total, over the course of the last 12 years alone, the beneficiary companies were exempted by the government from paying at least 400 billion pesos in taxes, money that was either pardoned directly or reimbursed from the national value added tax (IVA).

“By signing this decree (executive order) to dissolve this legal figure, we will recoup the constitution in both letter and spirit so that we all pay taxes,” AMLO said.

Actually, it took some time for the AMLO administration to get around to abolishing the practice of offering exemptions for tax-eluding corporations. Last January, the Mexican Supreme Court turned down a request from world-famous Corona beer manufacturer Grupo Modelo. for a reimbursement of 13 billion pesos from previously paid taxes. The hand of AMLO was definitely felt in that decision not to return the disputed funds.

Since last year, former Grupo Modelo owner Beatriz Sánchez Navarro had demanded the return of the money of Value Added Tax (IVA) for a transaction carried out in 2013. The new and current owners of Grupo Modelo since 2013, the international brewing company Anheuser-Busch, denied any connection to the suit filed by Sánchez Navarro since it had paid over $20.1 billion dollars in cash for 49 percent of the company. The government had retained 5 percent in IVA and Sánchez Navarro demanded that amount back.

The original problem with this suit is that 400 billion pesos in taxes that reimbursed during that period were returned to 103,500 taxpayers, but the real beneficiaries of this reimbursement were a minority of just 108 companies, which combined received government kickbacks of 213 billion pesos.

Current government chief tax collector and head of the Tributary Service Administration (SAT) Margarita Ríos-Farjat was present for the signing of the decree that officially eliminated this type of legalized tax evasion, which AMLO called “white-collar huachicol.” (Huachicol is the Mexican slang word used for fuel theft from Pemex ducts). AMLO said, “Let those who have the highest income, be the ones that contribute the most taxes.”

SAT’s Rios-Farjat said that, even without the executive order nullifying the 2000 Fox decree, the AMLO administration from the start began struggling against this practice of tax returns “in order to not favor these (large companies) with policies and to create a more even playing field so as to favor and give incentives to the efforts of taxpayers who do comply with payment.” She said that the dissipations for which these waivers were conceded will be left unchanged.

The first consequence of this new policy, Rios-Farjat said, is that between January and April this year, tax revenues increased by 4.5 percent. This amount represents 95 billion additional pesos compared to the same period in 2018.

The elimination of the corporate tax waiver will directly affect thousands of companies currently operating in Mexico. Banks will no longer get tax breaks and neither will many big companies (by law is forbidden to give names). The new rules also apply to television stations, which will lose the tax breaks they enjoyed through the ownership of soccer clubs (Mexico’s Federal Labor Law allows for big corporations to deduct taxes through soccer teams ownership, which are considered entertainment for the working classes). Others that will be affected are sugar mills, large cargo carriers and construction companies.

In short, Mexico had become a fiscal paradise for Big Business under Fox, Calderón and Peña Nieto, who, through these decree, according to AMLO, allowed their “buddies” to sack the nation.

This new decree came only a few days after AMLO announced another law which will have many a politico frowning. This law, now in the making, will be called the “Institute to Return to the People what was Stolen.” The name says it all.

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