| | |  News Around the Republic of Mexico | October 2009 
Mexico Senate Completes Approval of Tax Plan
 Miguel Angel Gutierrez - Reuters
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October 31, 2009
 |  | The Senate supported a measure passed by the lower house to raise the value added tax rate, or VAT, to 16 percent from 15 percent. |  | | |
Mexico City - Mexico's Senate approved on Saturday a watered-down version of President Felipe Calderon's fiscal reform package to raise taxes in order to reduce Mexico's dependence on its waning oil industry.
Senators in the early morning hours on Saturday agreed to minor changes to a bill passed by the lower house last week and now the Congress will have to vet the changes before the bill goes to Calderon's desk for final approval.
Among the changes was a 3 percent tax on telecommunications that would exclude Internet services.
The Senate supported a measure passed by the lower house to raise the value added tax rate, or VAT, to 16 percent from 15 percent.
The vote marks a partial victory for Calderon, whose original plan would have broadened Mexico's tax base but was rejected in the lower house last week.
It was unclear if the rise in the VAT tax would be enough to stave off a looming credit-rating downgrade.
The bill, part of the revenue portion of the 2010 budget, also would raise the top income tax rate to 30 percent from 28 percent and raise taxes on beer, cigarettes and gambling.
Senators also passed a part of the revenue package that would set the 2010 federal budget deficit at the equivalent of 0.75 percent of gross domestic product.
Calderon originally asked for a 0.5 percent deficit.
Senators signed off on a measure to set a budget forecast that estimates Mexican crude exports will sell for an average $59 per barrel in 2010 -- higher than the forecast in Calderon's original plan.
The deficit, oil price estimate and income tax hike were all approved by the lower house last week.
Mexican government revenues have plunged this year because of a severe recession and a slump in oil production, which is down by about a quarter from 2004 levels.
Calderon's conservatives lack a majority in both houses of Congress, and were unable to convince the opposition Institutional Revolutionary Party, or PRI, to back a 2 percent sales tax on all goods without exception.
The fall in oil output has removed a long-time crutch for public finances that for decades allowed Mexico to keep its tax take at one of the lowest levels in Latin America. Debt rating agencies are threatening a downgrade if Mexico's government fails to boost non-oil revenues.
(Editing by Will Dunham)
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