President Vicente Fox has announced a reduction in the corporate income tax (impuesto sobre la renta, ISR) to encourage investment and promote job creation. The move received a mixed reaction from financial analysts, business organizations, and the investment community.
The reduction will take the form of a deduction for most large corporations. In most cases, the lower ISR will be phased in during 2004 and 2005, but some corporations in industries that historically have generated large numbers of jobs may be eligible for the tax cut later this year.
"The principal objective of this decree is to encourage companies to deduct their investment costs during the year that the investments are actually made," said Raul Martinez Ostos, spokesperson for the Secretaria de Hacienda y Credito Publico (SHCP).
The move earned praise from some analysts like Roberto Galvan, president of Vanguardia Investment in Mexico City, who called the decision "one of the smartest moves" adopted by the Fox government during its three years in office. "This is an efficient decree to support the business sector because it will promote job creation and investment."
Galvan added that the move provided Fox a legal means of changing the tax system without having to endure a full debate on tax reform.
Proposal receives mixed reactions
The business sector was not entirely sold on the decision, however. The Confederacion de Camaras Nacionales de Comercio, Servicios y Turismo (CONCANACO-SERVYTUR) and the employers organization Confederacion Patronal de la Republica Mexicana (COPARMEX) described the tax change as only a "patch" and not a long-term solution. "The best tax incentive would be a comprehensive fiscal reform that expands the tax base," said CONCANACO-SERVYTUR president Raul Alejandro Padilla. …