Having had the time to review the details of a significant tax reform proposal since it was submitted to the country’s legislature two weeks ago by president Enrique Peña Nieto, Mexican automotive manufacturers don’t seem care for what they see.
Car producers in the country claim that what has been put into the document that is on the table for consideration can do significant harm with respect to their global competitiveness. Their main concerns are essentially three in number. Two of these have implications that could affect Mexican automotive manufacturers production costs and cash flow, while the third issue that gives them trepidation could affect sales volume in the national market:
- At present automakers and others in Mexico that produce primarily for export are exempt from a sixteen percent value-added tax on imports of machinery, equipment and raw materials. The proposed tax reform purports to eliminate this benefit. Mexican auto manufacturers fear that this measure will make it harder for them to compete on a global scale.
- Currently Mexican automotive manufacturers have the ability to deduct investments in plant and equipment immediately for tax purposes. The proposed legislation would, in essence, increase automaker’s tax burden, and, thereby, in their view, further threaten their competitive position just at a time when Mexico has broken into the ranks of the world’s top ten most prolific automotive manufacturing nations.
- Mexico presently allows companies that purchase cars for their executive to make deductions in the amount of the Mexican Peso equivalent of US $13,535. Should the proposal make it way into the law books this amount would be decreased to $10,055. Additionally the reform calls for a reduction in the amount that companies can take for business rentals.
Although the Mexican automotive manufacturers view the proposed changes as particularly onerous, analysts concur that when deciding on where to make their investments, car companies look at a wide set of variables beyond tax and fiscal considerations. They also look at such things as transportation and labor supply infrastructure, as well as the suppliers that they need to conduct their operations.
The full original article can be read at the Financial Times (registration required)