The joint publication Tax Trends, 1990–2020, prepared by ECLAC, IDB, OECD, CIAT, with the background of, among others, the OECD’s World Tax Statistics and the IMF’s Financial Data, was recently presented.
In this document we can see the weakness of our tax structure. A topic that I have been addressing for many years. how to collect power
Mexico is centralized in federal government, about 95 percent, while state or subnational governments, with 4 percent, and municipalities or local governments do not reach 1 percent.
We have always been below average in the tax collection-GDP ratio; In 2020, for example, the OECD average is 33.5 percent, for Latin America and the Caribbean it is 21.9, although for Brazil 31.6, Argentina 29.4, Chile 19.3, Mexico 17.9 percent and Peru an astonishing 15.2 percent.
Tax collections in Mexico increased by 1.6 percent from 2019 to 2020, the latter proportion being the highest in the analysis period, its behavior increasing since 2005 but not enough to reach the OECD and Latin America averages.
According to the analysis in 2020, the tax structure in Mexico was mainly composed of 24% VAT, income tax for individuals with 21%, ISR 20% for companies, 14% of contributions to Social Security and 13% of taxes on goods. Overall services corresponded to 92%, with the remaining 8% to small goods.
In terms of income tax for individuals, Mexico is much higher than the average for Latin America, which is very close to the ratio of OCE, which is 23%; On the other hand, in the case of VAT, it is slightly higher than that of OECD, but less than 27% of ACL.
The wealth tax in Mexico is 0.2% while it is 4% in Latin America and 6% in the OECD, important to take into account the size of the country and its great social diversity, another item where it is low in both contexts of social security. In this regard, the region averages 18%, the OECD 26%, while in Mexico it is 14%, as we have already mentioned.
As mentioned about 95 per cent is collected by the central government by order of the government; 4, state, and 1 percent, municipal. If we subtract Social Security funds, taxing power in Mexico has become too centralized; For example, among the federal countries of the region, state governments collect 16.8 percent in Argentina and 24.4 percent in Brazil, and even with this degree of decentralization of tax power they still have serious budget problems. Chile, a unitary or centralized country, has 86.0 percent of the central system and 7.8 percent of local governments, without reducing Social Security income in these three cases. Of course, the countries of the subcontinent are unitary countries with the exception of Argentina, Colombia, Venezuela, Brazil and Mexico, which are federal.
As we see, the act must be swift and states must demonstrate fiscal responsibility, for example, by canceling tenancy or having a history of poor use of their tax powers with respectable exceptions, before transferring more powers to the states. Not to reiterate, not because they have no tax evasion, nor corruption in matters like tax refunds, when applicable, avoiding clean slate programs, not having fiscal cost, which is a way of spending contrary, discipline, Spending with transparency and effective accountability, and of course spending policies with rationality and social control.