Mexican Congress Passes New Taxes in Fiscal Reform

Mexico’s Congress passed a $7.5-billion package of new taxes Monday, including new levies on telephone services, soft drinks and cigarettes, meant to boost government income and ease dependence on oil exports.

The taxes were drawn up following months of debate by the nation’s main political parties after they rejected key elements of President Vicente Fox’s fiscal reform package presented in April.

New revenues from the tax reforms were estimated at $7.5 billion, far from the government’s original goal of raising $13 billion.

The taxes won broad support in the lower house, the Chamber of Deputies, despite opposition from industry leaders. The Senate narrowly approved the tax package in general terms, with 56 votes for and 55 against, though it still was debating some details.

Tax reform is the last hurdle Mexico faces in convincing Standard & Poor’s Corp. to raise Mexico’s credit rating to investment grade, a move that would lower its borrowing costs substantially.

Still, it was not clear whether the approved reforms--which would raise much less than the government had initially sought--would sufficiently strengthen government finances to win that rating upgrade.

Deputies already had agreed over the weekend to cut private-sector tax breaks and to create a tax on some stock market transactions.

But the Senate sent that tax back to the lower house seeking some changes. It was not clear on Monday what final form it would take.

The reform package was radically different from that proposed in April by Fox’s government, which took office 13 months ago. It also will raise much less money than Fox had requested.

His plan centered on extending the 15% value-added tax to food and medicines, but it was met with hostility in the opposition-dominated Congress, with critics saying Mexico’s 40 million poor would bear the brunt of the reform.

Fox’s own conservative National Action Party quickly made clear it would not try to force the VAT measure through, and opposition parties rejected compromise proposals under which a lower VAT rate would be applied to food and medicines.

The reforms approved Monday were more populist in tone.