MEDC had a great turnout at yesterday’s (October 28) press conference. The proposed Mexican tax reform could impact our maquiladora/manufacturing industry if legislation passes. See below for our print and broadcast coverage.
FROM THE MONITOR:
McALLEN — Tax reform legislation recently adopted by the Cámara de Diputados — Mexico’s equivalent of the U.S. House of Representatives — would roughly double the tax burden for many local maquiladoras, according to Reynosa plant managers.
Mexico would start taxing benefits provided to maquiladora workers and collect a new value-added tax on temporary imports. Combined with the legislation’s other new regulations, the effective tax rate for maquiladoras would jump to 37 percent.
Maquiladoras currently pay a much lower 17 to 19 percent effective tax rate, according to the Consejo Nacional de la Industria Maquiladora y Manufacturera de Exportación, an industry association for Mexico’s foreign manufacturers. Members have urged the Mexican Senate to kill or reduce any tax hike.
“This preferential tax rate was designed to bring investments to Mexico, which is approximately 40 percent of Tamaulipas’ economy,” said Joseph Olmeda, president of the Reynosa maquiladora association and plant manager for BSN Medical. “Obviously, the goose that lays that golden egg — they’re affecting it. And there may be longer term consequences not just to the state but to the international maquila industry.”
Mexico’s tax reform proposal would pump new money into public services and supplement falling revenue from PEMEX, the nationally owned oil company. Tax collection also remains a major problem. The Organization for Economic Cooperation and Development ranked Mexico last among 34 developed nations for tax collection in 2009.
The tax reform legislation would cost BSN Medical’s local maquiladora, which makes orthopedic products, roughly $1.3 million to $1.5 million annually, said Olmeda, the company’s vice president for manufacturing.
If Mexico doesn’t reduce the proposed tax burden, manufacturers may move production to other low-cost nations, Olmeda said, and re-evaluate shifting additional manufacturing from China to Mexico.
Any shift would have a major impact on Reynosa, where maquiladoras employ more than 90,000 workers. Manufacturing wages support an additional 360,000 to 450,000 jobs, said Dan McGrew, vice president of the national maquiladora association.
A typical union maquiladora worker’s compensation includes numerous benefits, which aren’t taxed under Mexican law.
“We like to use those benefits because it’s kind of a win-win,” McGrew said. “There’s no tax to the company and all of it then flows through to the employee.”
Higher taxes on maquiladoras would also hurt the Rio Grande Valley economy, said Keith Patridge, president of the McAllen Economic Development Corp. Local manufacturers, truckers, warehouses and logistics firms all support Reynosa’s maquiladoras. If maquiladoras move elsewhere, American businesses will suffer, too.
“We’re not saying that the government of Mexico doesn’t need revenues and that (maquiladoras) shouldn’t pay their fair share. The whole issue is ‘fair share,’” Patridge said. “And when you’re looking at over a 300 percent increase for some of our companies under this proposition, we feel like that’s not fair.”
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