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Tax reform proposal in the maquiladora industry in Mexico: Part 1

Tax reform proposal in the maquiladora industry in Mexico: Part 1

Hello. I am Sergio Vazquez, finance director of the Tecma Group of Companies, a shelter service provider in the maquiladora industry in Mexico.

I will address some significant financial and tax rule changes that may have an unfavorable impact on the maquiladora industry in Mexico. I am referring to the Mexican tax reform proposal that was sent to the Mexican congress about one month ago. Certainly, these proposals could affect many sectors of the Mexican economy, but I will restrict my comments to the maquiladora industry, in particular.

These proposed changes can be separated in two categories:

1) changes that impact the industry, and 2) changes that impact the employees.

The first change that may have on the maquiladora industry in Mexico is the imposition of a new, sixteen percent IVA (value-added-tax) rate on all temporary imports. Currently, those temporary imports are tax exempt. Since these taxes will cause a cash flow impact, the real concerns for the companies are the financial cost of the change, and the logistics of the value-added-tax recovery process.

A second major change is the substantial increase of the income tax rate for the partial elimination of benefits in the maquiladora industry in Mexico such as the use of tranfer pricing status which allows maquiladoras to pay Mexican income tax under a calculated tax profit of an average of 6.3% versus that average of 6.5%, that is included in the proposal.

The major changes impacting the workers are elimination of several exemptions and deductions that companies can take for salaries and benefits, as well as an overall increase of the IVA, or value-added-tax, from 11% to sixteen percent in the border area.

This is the first in a two part video series, please return to the website in the near future to learn about the outcome.

Photo credit: epSos

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