Tax Hike for Border Plants Causes Uproar : Mexico: New tariffs quintuple tax burden on <i> maquiladoras</i> , which have enjoyed shelters and benefited from peso devaluation.

Desperate to raise money to weather its deep financial crisis, the Mexican government has slapped a new tariff on the foreign-owned border factories called maquiladoras, more than quintupling their tax burden and causing an uproar in the industry.

Mexico had been threatening new taxes on the maquiladoras , which have enjoyed special shelter from most tariffs and reaped a windfall from the recent devaluation of the Mexican peso.

The devaluation has boosted maquiladoras’ profits by slashing the cost of labor by about 40%, making the plants an inviting tax target.

But the tariff outlined in Miscelanea Fiscal, a digest of government resolutions and decrees published Friday, is more stringent and onerous than anyone in the industry expected. The 1.8% tax on the value of the maquiladoras’ real estate, machinery and other assets could amount to five times the income tax that maquiladoras expected to begin paying next year when a new tax scheme was scheduled to kick in.

The maquiladora owners also complained that the new tariff amounts to double taxation. Unlike some taxes paid by U.S. multinational corporations overseas, the assets tax will probably not be deductible from U.S. corporate taxes, Internal Revenue Service officials said Thursday.

A spokeswoman for Hacienda, the Mexican finance ministry, said the tax has been on the books since 1989 but until now has been waived for maquiladoras . Though it was described as an “interim” tax, maquiladora officials fear it will become permanent.

Just how damaging the tax will be is open to debate.

Some in the maquiladora industry say that, if not softened, the tax will discourage foreign owners from moving plants to Mexico or cause existing operations to move out. It is especially onerous for large plants owned by such companies as Sanyo, which said the new tariff could cost it up to $4 million a year.

“If this decree is not changed, the Mexican government will kill the goose before the golden eggs get found,” said Carlos de Orduna, general manager of Sanyo’s sprawling complex of maquiladoras in Tijuana and chairman of the Western Maquiladora Trade Assn., a group of Baja California plant operators and owners.

But others, such as Gary Hufbauer, senior fellow at the Institute for International Economics in Washington, said the peso devaluation has made the economics of foreign investment in Mexico so favorable that the new tax will at worst only slow investment there.

“It’s an annoyance, but the incentives to invest in Mexico are huge. We’re expecting foreign investment to shoot up significantly in 1996 if the political situation is stable,” Hufbauer said. “It is no doubt true that the maquiladoras are making more profits. It’s like Santa Claus visited them and then came again.”

The 2,300 maquiladoras located mainly along the U.S.-Mexico border employ 600,000 people and bring in $7 billion in foreign currency a year, exceeding petroleum and tourism as generators of foreign currency, De Orduna said.

Up to now, the plants and machinery owned and operated by maquiladoras have been sheltered from Mexican taxes as long as the products they make go back across the border for sale in the United States or other foreign countries. What Mexico lost in taxes it gained in jobs and foreign currency, or so went the rationale for the special status.

The maquiladora industry had been working with Hacienda on a new tax system based on transfer pricing, which essentially will transfer to Mexican coffers a portion of U.S. corporate taxes that now go to the IRS. Those taxes paid to Mexico would be deductible from companies’ U.S. tax bills.

But asset taxes generally do not qualify for deductions, according to a spokesman for the international division of the IRS. The only foreign taxes that do are those based on income, the IRS spokesman said.