Can Mexico lower taxes?

In times of a globalized economy, the resolutions of the United States have an unavoidable impact on the rest of the nations of the Western world. Mexico, given its geographical proximity and trade transactions, is even more affected than others. The phrase “when the U.S. gets a cold, Mexico gets pneumonia” is quite fitting to describe the situation.

This Wednesday, the United States approved the biggest tax cut reform of the last three decades. With these changes, taxes paid by businesses decreased from 35 to 21 percent. Most individual tax payers will also pay less to the Internal Revenue Service (IRS).

The consequence is foreseeable: United States will become an attractive location for companies, which will prefer to pay their taxes there than anywhere else. For this reason, Mexico can be one of the most affected by this measure.

Last Tuesday the Ministry of Finance and the Bank of Mexico acknowledge the tax plan will certainly impact Mexican economy. The reform in the U.S. was expected...then how come actions plans weren't devised to provide reassurance?

The Employers Confederation of the Mexican Republic is also questioning why if the tax changes in the U.S. had been discussed since August, in Mexico “nothing was done on time to get ahead of the measures.”

Mexico is currently half-way on a tax reformation which just doesn't seem to conclude. It's common to see tax authorities celebrating each tax reform goal met; however, tax collection levels are still below those recommended on an international scale. The OECD keeps a record of tax collection in Mexico, lower than the average of the rest of member countries. Even at a regional level, several Latin American countries have higher levels of tax collection than we do.

Immediately, the representatives of the private sector proposed a series of measures to face the U.S. reform – they have even asked the Congress to convene an extraordinary term to discuss the issue.

This opportunity should be used to propose tax changes in Mexico that, indeed, lower the taxes to companies and businesses so the country can protect itself against an eventual flight of corporations and foreign investment, yet reforms shouldn't focus solely on this sector.

The decision of the U.S. is a strong challenge. Will Mexico bet for a tax cut of its own? The answer isn't easy; it requires a deep analysis by both, tax authorities and the Congress of the Union

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