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The cost of tax privileges

Translated and adapted by me. 

We know the deal: This government will not create new taxes, it will focus on combating tax fraud and other practices that, despite being legal, are taken advantage of by wealthier contributors to pay less taxes. Under this logic, from the beginning of this year there are more “locks” on tax reliefs, the fight against fake receipt forgers(1) recently intensified, and some international corporations were finally obligated to pay millions in tax dues. Undoubtedly, these actions point towards the right direction, but there’s still a long way to go to make our tax system truly fair. One of the great holdups has to do with tax privileges that favor more resourceful companies and corporations.

The Mexican Tributary Administration Service headquarters.
The Mexican Tributary Administration Service headquarters.
Photo: wikipedia
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On June 30th, 2020, the Secretary of public finance and treasury published the fiscal expenses budget, a document that contains most tax breaks that exist in our country. This document shows how many taxes the federal government doesn’t collect thanks to the 108 breaks that are given to taxpayers, even if some do favor those with fewer resources, generally the primary beneficiaries are companies and people with a wealth of resources.

For instance, the Personal Income Tax (ISR Personal), a tax all physical(2) taxpayers must pay for their income in a given year. This tax has 37 tax breaks that represent a loss of twelve billion dollars. These tax breaks have many forms and each has its own rules, but independent of that, one of the main problems is that despite being targeted at the very richest people, our treasury has never examined the effectivity of those tax breaks.

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A paradigmatic case is that of tax deductions for school tuition. Thanks to this break, the richest families in the country have the possibility of deducting school tuition from some of the most expensive schools in the country. in 2020 this break will cost 140 million dollars, and the richest 10% of taxpayers will receive 81% of the benefits. We cannot say if this tax break makes sense in such an unequal nation, or that any administration has evaluated it’s performance in the past or present, the same could be said of the other tax breaks that exist in Mexico.

The economic crisis has shown that our public funds are scarce, and even if the fight against tax evasion will raise them, revising the hundreds of tax breaks that benefit the richest people and corporations is necessary. This administration has chosen not to create new taxes, and their own plan would let them eliminate any sort of privilege. Hopefully, it’ll be done.

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(1): One of the common ways of evading corporate taxes in Mexico is by forging receipts.  
(2): “Physical” taxpayers, personas físicas, is the treasury’s definition of an individual, legal and taxpaying entity, as in, an individual person as opposed to a corporation.

Written for Animal politico by Ivan Benumea from Fundar Mexico. Benumea is the coordinator of the fiscal justice program at Fundar Mexico.

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