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Mexico seeks to eliminate tax incentive for car manufacturers

(Bloomberg) – Mexico is seeking to crack down on key incentives for global automakers to produce domestically, the government’s latest effort against big business to boost revenue.

Raquel Buenrostro, head of the Mexican tax authority known as SAT, said in an interview that her proposal is pending approval by the Ministry of Finance and that it is part of a package of measures that seek to increase tax collection by 1 % of gross domestic product next year.

As a close ally of the president, Andrés Manuel López Obrador, Buenrostro has led the efforts that have led large companies, including Walmart de México SAB, to increase tax payments by a total of US $ 13 billion last year. In recent years, previous administrations used incentives to attract new investment from automakers such as Toyota Motor Corp and General Motors Co., helping Mexico become the fourth largest auto exporter by value. Those incentives must end, Buenrostro said.

“We are going to debug all this,” he said. “We have to see what were the incentives that the Government gave at the time so that they could bring the investment, but once that investment is recovered, it makes no sense to maintain them.”

‘Zero rate’

The proposal includes eliminating a tax exemption known as the “zero rate” that allows global automakers to demand refunds on the value added taxes they pay in the country, Buenrostro explained. Combined with other tax strategies, the government ends up owing money to some automakers, he said. “It doesn’t make economic sense.”

Buenrostro said its tax changes would not affect auto investment in Mexico, even though a company it spoke to last year warned it could pull out of the country.

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“This threat is not credible,” said Buenrostro, refusing to identify the company. “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.’

Pemex refinancing

On Friday, in an interview at his Mexico City office, Buenrostro said his new boss, incoming Treasury Secretary Rogelio Ramírez de la O, will prioritize refinancing Pemex’s debt. Although she does not personally work on issues related to the indebted state oil company, she said she is close to both Ramírez and López Obrador.

“That will be the first because Pemex debt is more expensive than sovereign debt,” he said. López Obrador has wanted to refinance “for a long, long, long time,” he said, without giving details.

Buenrostro noted that he is still discussing with Ramírez de la O what legislative proposals will be presented together with the 2022 budget in September, and as part of a tax reform. She is also looking to eliminate loopholes that, she says, allow other manufacturers that export most of their products to avoid paying taxes on products sold in Mexico.

Mexico has been left out of the multilateral income tax sharing agreements signed by car manufacturers, he said, something that he wants to change. “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,” he said.

Interjet case

Buenrostro said the government is now pushing beyond its crackdown on major companies toward the most important players in the country’s vast informal economy. A new digital system to track truck shipments and a decree to separate customs officials from the tax authority will allow National Guard troops and customs authorities to have a greater role in monitoring imports after a surge. in recent years in smuggling.

He ruled out that López Obrador will propose new taxes, such as the inheritance tax that has been endorsed by members of his party, Morena.

Buenrostro also defended the tax fraud charges against businessman Miguel Alemán Magnani, founder of the Mexican airline Interjet, who currently resides in France before an arrest warrant that his lawyer says is unfair. Aleman was not the chief executive officer when Interjet allegedly did not transfer the taxes to the government, argued his lawyer.

The official said that Alemán was part of the company’s board of directors and also an executive in the past. “And while it is true that in the last period of Interjet he was not a director, he was, and we have been seeing it since 2013,” he said. “Everyone is hiding behind a moral person.”

Original Note: Automakers Are Newest Target in Mexico Tax Chief’s Crackdown

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