Mexico state.- The structural weakness of the tax system in Mexico is raising red flags in different areas and the most worrying thing is that it impoverishes a large part of the population that is already in poverty due to the burden of consumption taxes, warned the Independent Commission for Equality with Tax Justice (CIJUF).
“There are some red flags that I would like to mention: when one measures the impact of transfers on poverty. Poverty falls versus what it would be before the transfers, but when one calculates what happens after taxes are taken into account, especially consumption taxes such as VAT, IEPS, it turns out that poverty rises.
“That is to say, the system is in some way leaving a significant portion of the poor population with less purchasing power than they would have with their pure market income, and that is something that can and must be corrected. To achieve this, transfers will have to be expanded and made more focused on the poor population so that purchasing power is not diminished but, on the contrary, poverty is eradicated. That is a red flag,” said Nora Lustig, co-president of CIJUF, at a press conference.
Another red flag of the tax system in Mexico is that due to the way rates and withholdings are set up, people who earn something above the minimum non-taxable income end up earning less in net terms than the minimum non-taxable income, he noted.
“That is called horizontal inequity in our jargon. That is easy to correct and should be corrected because no system should have horizontal inequities.
“Another red flag we have observed is that there is a significant imbalance in the way resources have been allocated when comparing age groups. Poverty among older adults has fallen significantly, but poverty among children has increased,” the specialist added.
It is important to have a dignified life in old age, but it is also very important to provide resources to early childhood, he indicated.
“That is why we are proposing to review and make a new evaluation of what type of programs must be implemented so that child malnutrition is eliminated, so that school performance increases and the health of children in early childhood is at adequate levels.” , I note.
Closing the collection gap
Reducing the collection gap that Mexico has with respect to the average of Latin American countries would imply between 3 and 5 additional percentage points of the Gross Domestic Product (GDP), said Gerardo Esquivel, co-president of the Independent Commission for Equality with Tax Justice (CIJUF).
Achieving tax collection closer to the current average in Latin America and the Caribbean would also entail reviewing tax rates, social security withholdings and tax waivers, as well as combating tax avoidance and evasion.
With this additional revenue, the country could begin to make the necessary social investments that would eradicate extreme poverty and promote inclusive growth that brings the country closer to a scenario of shared prosperity, he explained.
“We need to move forward and reduce the gap with respect to the average collection of Latin America, middle-income Latin American countries, which would imply between 3 and 5 additional percentage points of GDP to be able to advance in satisfying the needs that we have identified” said the former deputy governor of the Bank of Mexico.
They ask to review the wealth tax
Because there is a very high concentration of wealth in Mexico, the CIJUF asked to review the convenience of introducing federal taxes on its intergenerational transmission, in terms of social costs and benefits.
“What we are proposing is that the taxation of wealth and its intergenerational transmission be reviewed to consider whether it is possible to introduce taxes different from those they say now, on inheritance and donations.
“These are spaces where we have to examine where the possibilities are to increase public resources for the great challenge in terms of social and environmental objectives,” Lustig said.
Until now, in Mexico there is no consensus to introduce a similar tax, and that it be recurring annually.
“What is being proposed here is that at least the possibility of introducing modifications to taxes that are associated with the intergenerational transmission of wealth be considered,” stressed the co-president.
#warn #structural #weakness #tax #system