| | |  Business News 
Mexico to Axe Car Tax to Spur Domestic Sales
 Adriana Barrera - Reuters
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June 25, 2010
 |  | Mexico has one of the lowest tax collection rates in Latin America and plans to run a fiscal deficit in 2010 equivalent to 2.8 percent of gross domestic product. |  | | |
Mexico City - Mexico will eliminate an annual auto tax, starting with buyers of new cars this year, to support a key sector of the economy, President Felipe Calderon said on Thursday.
People buying new vehicles this year, aside from very high-end models, will not pay the annual car tax, Calderon said.
In a move likely to shore up his waning popularity, Calderon told a news conference the yearly tax, originally imposed to raise funds for the Olympic Games hosted by Mexico in 1968, will be scrapped completely by the end of 2011.
Since the global credit crisis slammed Mexico's economy in 2008, the auto sector has been lobbying Calderon to provide incentives to stimulate the industry, like the U.S. "cash for clunkers" program.
Mexico's auto industry, with major players like Volkswagen, Ford and Nissan, has sharply increased exports to the United States in recent months but domestic sales have recovered less quickly.
"To reverse this situation, it's vital to support this sector with measures to stimulate the purchase of new cars in the country, which will strengthen the industry and create more and better jobs," Calderon said.
Mexican exports to the United States collapsed in late-2008 and the economy shrank 6.5 percent in 2009, one of the deepest contractions anywhere in the world that year.
U.S.-bound exports like cars and televisions have rebounded this year but weak consumer spending is dragging on growth.
Mexico's slow recovery from the recession as well as Calderon's increasingly violent army-led war on brutal drug cartels have hurt the president's popularity ratings ahead of state-level elections in July.
Mexico has one of the lowest tax collection rates in Latin America and plans to run a fiscal deficit in 2010 equivalent to 2.8 percent of gross domestic product.
The "tenencia" annual car tax is based on a car's purchase price and declines as it ages. It can vary from around $200 for an old low-end sedan to more than $1,000 for luxury models.
(Editing by Chizu Nomiyama)
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