Mexico reinforces the offensive against the tax privileges of large companies

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• The governments of Calderón and Peña Nieto forgave $ 13 billion in taxes
• The Mexican treasury forgave debts to companies and individuals for 3,000 million during the last year
• Mexico stops raising 28,000 million dollars every year for tax evasion

Mexico has proposed to plug the fiscal holes of what once looked like a gruyere cheese. Driven by the narrative of the fight against corruption of the Government of Andrés Manuel López Obrador, the Tax Administration Service (SAT) has redoubled the offensive against the privileges of large companies to expand a historically low collection. The push is giving results. América Móvil, the largest telecommunications company in Latin America and owned by tycoon Carlos Slim, acknowledged on Tuesday that it had paid more than 8,000 million pesos, about 430 million dollars, for income tax (ISR) deferred between the years 2016 and 2019.

The case of América Móvil is paradigmatic. Despite its size and dominant market position, the company had benefited from a deferred tax payment for three years. The law that allowed it, approved at the beginning of the Enrique Peña Nieto administration, sought to favor Mexican companies over foreign companies. In December, América Móvil notified the SAT of the end of that scenario and identified 66 companies that would return to the normal tax regime.

The tax authority is passing the basket to collect the due. "The SAT urges taxpayers - particularly the so-called large taxpayers - to comply with their tax obligations with the Mexican State, in the way they mandate tax laws," said a statement published Monday. It seems business as usual , but the analyst Carlos Brown, of the Fundar research center, points to a change of cycle. "It has to do with the intention of the SAT to put order in debts," he says. "I see it very difficult for this kind of benefits to happen again."

The payment of América Móvil is not isolated. The SAT has demanded from Walmart Mexico and the Alsea Group the payment of 10,000 and almost 4,000 million pesos (538 million dollars and 215 million pesos), respectively, for the operation of sale of 361 restaurants of the Vips chain, carried out in 2014. The announcement has had an immediate impact on the stock market with drops of almost 4% for Walmart on Wednesday and 6% for Alsea on Monday. In addition, the tax agency has also claimed 630 million pesos, 34 million dollars, from the telecommunications company Maxcom. The three companies study legal actions to dispute the claim.

The tax front is one of the priorities of the Government of Morena, which has made the fight against corruption its flag and has led it to tighten fiscal policy towards large taxpayers. The problem to attack is old. The collection of Mexico is the lowest in the OECD. 16% of GDP versus the average of 34% in the club of advanced economies. In 2019, the first year of the Administration of López Obrador, the collection rose marginally compared to the previous year, but the effort remained 108,000 million pesos (5,800 million dollars) below the target. The amount is close to the budget for aid for the elderly, one of the star social programs.

In this context, tax exemptions do not help. Carlos Brown points to the laxity of the State towards large companies. “Tax credits were generated that were later forgiven; there were capital repatriation programs for which, instead of paying 30 or 32% of the ISR, 8% was paid. These ways of 'regularizing' ended up benefiting large taxpayers, ”says the expert.

To curb this collection loss, the Senate approved a constitutional reform in December to prohibit tax forgiveness and also tightened penalties for those who incur fraud methods such as false invoices. The turn coincides with the appointment in December of Raquel Buenrostro, known for his hard hand at the Treasury, leading the SAT.

The size of the cake is large. During the nine years spent in the Governments of Felipe Calderón, of the PAN, and Enrique Peña Nieto, of the PRI, 13,000 million dollars in taxes were forgiven through tax amnesties. Among the great beneficiaries were, for example, Pharmaceutical Roche and the milk group Lala, with two pardons that were around 130 million dollars.

The SAT wants to enter 187,000 million pesos, about 10,000 million dollars, in taxes owed by large taxpayers, according to information published by the newspaper La Jornada on Wednesday and citing official reports. “The tax administration would have to be very efficient, but the figure doesn't surprise me,” says analyst Adrián García, of the Center for Economic and Budgetary Research. "The fight against false invoices can raise half a point of GDP, an important amount if one considers that the collection of VAT in 2019 was 3.8%."

The thrust of the tax authorities is in the middle of a debate about the need for an in-depth tax reform, a project that López Obrador has refused to promote until the second half of his six-year term. Carlos Brown points to the problem of effectiveness, not so much of tax levels. "The problem is not the nominal rate, but the effective one, which is up to half in the case of the largest taxpayers." Even so, Adrián García points out that plugging holes is not enough: "It is an important step, but the fiscal space is so small that it is urgent to review deductions, capital taxes, environmental taxes."