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Mexico Fiscal Reform Could Be Bad For Maquiladoras

The Border Committee of Women Workers runs a small textile shop in Piedras Negras promoting fair trade practices.
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Above: The Border Committee of Women Workers runs a small textile shop in Piedras Negras promoting fair trade practices.

Aired 9/23/13 on KPBS News.

Proposed reforms to Mexico’s tax system could have consequences for U.S. companies doing business in Mexico, and for the border economy.

The maquiladora export industry that’s a key component of the U.S.-Mexico border economy could face major changes under proposed reforms to Mexico’s tax system.

Mexico currently collects fewer taxes from its citizens and companies than almost any other developed country. Mexico relies heavily on revenues from its state-run oil industry, which is in decline.

Mexican President Enrique Peña Nieto wants to change this.

One way he wants to do it is by tightening control over the country’s vast maquiladora export industry.

Factories that make and export goods to the U.S. and other foreign markets currently don’t pay taxes on their raw materials and machinery.

But that would change under the proposed reform. Maquiladoras would have to pay the normal 16 percent sales tax on their raw materials and then request a refund of that money when they export the final product.

That would require exporters to invest a lot more cash up front, said Héctor Vega, a tax partner with Deloitte Mexico. It could erase some of the advantage Mexico has over its manufacturing competitors, Vega said.

“Because we are very close to the U.S., it’s very natural doing business,” he said. “However, this 16 percent will impact a lot and maybe determinate where you put your investment, either in China, either in Vietnam, either in Malaysia or keep it in Mexico.”

Still, Vega is hopeful that the tax change affecting maquiladoras will ultimately be stripped from the final fiscal reform bill.

Comments

Avatar for user 'Missionaccomplished'

Missionaccomplished | September 23, 2013 at 8:35 a.m. ― 1 year, 2 months ago

"Mexico currently collects fewer taxes from its citizens and companies than almost any other developed country"

Mmmaybe the Teebirchers should move to Mexico! A little known fact to them since they are always warning against visiting!

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Avatar for user 'Missionaccomplished'

Missionaccomplished | September 23, 2013 at 8:37 a.m. ― 1 year, 2 months ago

While maquiladoras may be a source of employment, the wages remain low.

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Avatar for user 'CaliforniaDefender'

CaliforniaDefender | September 23, 2013 at 1:54 p.m. ― 1 year, 2 months ago

"Mexico currently collects fewer taxes from its citizens and companies than almost any other developed country."

===

According to the OECD document referenced in the article, Mexico is right in the middle for tax rates in Latin America. The problem is that the author compared Mexico to developed countries which Mexico is not.

But I am glad to see the Mexican government taking a stand, albeit a very weak one, against Maquiladoras which take nearly all profit out of Mexico.

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Avatar for user 'DeLaRick'

DeLaRick | September 23, 2013 at 3:17 p.m. ― 1 year, 2 months ago

CD,

Per the IMF's classifications, Mexico's ranking is appropriate. Brazil, Argentina and Chile are "developing," same as Mexico. You'd be correct if Mexico's classification were "undeveloped," but it's not.

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Avatar for user 'CaliforniaDefender'

CaliforniaDefender | September 23, 2013 at 4:45 p.m. ― 1 year, 2 months ago

DLR,

I agree that Mexico is developing, just as most of the 3rd world is. But it is not yet developed or in the same league as Europe, Japan, or America. Not even close.

That is why I took issue with the author of the article and Mission for trying to compare taxation rates in Mexico with the developed world.

I'm just glad Mexicans are starting to wake up and realize that a maquiladora job paying $40 for a 60 hour work week might put food on the table, but it does nothing for the long term health of the Mexican economy and people.

Maquiladoras keep people desperate and barely able to feed themselves. Perhaps that is exactly where the corporate world wants them. Hungry for their scraps.

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Avatar for user 'DeLaRick'

DeLaRick | September 24, 2013 at 6:19 a.m. ― 1 year, 2 months ago

CD,

Those economies you mentioned are "advanced." Bigger picture, Mexico's continuing development improves the position of the entire continent. Most of the things people fight about, such as immigration, are facts of life when 450 million people share the bottom rungs of a labor market.

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