Economics: Cost to Mexico of US Fiscal Reform
According to a tentative analysis of differing reports on the compromise tax bill Republican leaders in the US House of Representatives and Senate approved Friday, the US fiscal reform will have a considerable adverse impact on countries that do business with the United States, and that effect could be even greater for Mexico.
A report from the IMF suggests that the challenge in the case of Mexico will be to strengthen its own fiscal system, but the government has limited room for revamping fiscal policy; perhaps enough to make some adjustments but not for making any relevant structural changes.
The main point of concern is how the US fiscal reform will affect foreign investment from major investors (portfolio investments) and producers (direct investment). While we lack many details on what the US Congress approved, it is necessary to begin to anticipate how it will affect the expected rate of return on investment in a company in Mexico as opposed to a similar business in the United States.
Other important questions about which we lack any information include what might happen to the Convention for the Avoidance of Double Taxation that Mexico has with the United States and other countries. In that regard, we need to analyze the total tax bill companies will face in each country.
Lastly, and perhaps most importantly, is the way the reform is expected to raise other taxes, so the overall corporate tax burden may might not be lowered for all companies in the US. Obviously, treasury officials in Mexico need to look for ways to increase tax collections and adapt to the new international fiscal environment.
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