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 Editorials | Issues | June 2007 
Mexico Tax Dodgers One Step Ahead of Government
 Greg Brosnan - Reuters
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Mexico City - The ink is barely dry on a new bill aimed at cracking down on fiscal evasion but with savvy Mexicans already figuring ways to avoid the taxman, the government will struggle to contain the black economy.
Hoping to wean Mexico off oil dollars and generate cash for infrastructure like hospitals, roads and schools, President Felipe Calderon gave lawmakers a long-awaited bill on Wednesday aimed at bumping up the country's miserable tax take.
Proposals include a plan to levy a tax of 2 percent on monthly bank deposits of cash larger than a sum equivalent to just under $2,000 - a measure aimed at small businesses and self-employed workers who keep transactions in cash.
In a country where tax evasion is as much a national sport as soccer, the lower middle-class Mexicans the measure would likely affect are a step ahead of the government as it homes in on their corner stores and hairdressing salons.
"When it comes in, I'll stop putting money in the bank," Jesus, a 32-year old mechanic running a small garage in a suburb in southern Mexico City, said of the proposed law.
Asking that his last name not be used for fear of getting in trouble, Jesus said he filled out a receipt for about one in every 20 jobs to make his profits look much lower than they really were and therefore barely pay any tax.
Benito Berber, a Mexican economist at HSBC in New York, said the government's plan to find untaxed cash in banks is a good idea in theory.
"It makes sense," he said. "A lot of people keep their money out of reach of the finance ministry by doing a lot of transactions in cash, which ultimately gets deposited in a bank."
SERVICES LACKING
But on hearing about the bill, Elizabeth, a restaurant owner in the capital's working class Escandon neighborhood who pays her five workers cash in hand, stopped work to call her accountant to find a loophole.
"I'll just have to buy a safe or stick it in my mattress," she joked after listening to his advice, clearly not worried.
Millions of Mexicans, from taco sellers to even software programmers, work without paying income tax. The size of the informal economy is difficult to measure but economists reckon it employs more than a third of Latin America's workforce.
Most Mexicans agree that they should pay some level of tax to fund vital services and keep the government running.
But small to medium-sized businesses often complain they are expected to carry most of the country's fiscal burden, saying poor street vendors pay no taxes at all while the very rich use connections and clever accountants to sidestep them.
Would-be taxpayers are loathe to fork out in a country where a welfare state barely exists, where ill-equipped police do little to prevent crime and where many fear their cash will end up lining corrupt officials' pockets.
The result is a vicious circle of distrust that Calderon may find hard to break.
"(Paying tax) is fair, but you also need to see that things work," said Jesus. "You're paying taxes but your street is not any cleaner, safer or better lit." |
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