The Tax System in Mexico

The Mexican tax system encompasses a number of commendable features and disincentives to work, save and invest appear less severe than in most other OECD countries. However, the system also contains major deficiencies, which hampers the efficiency and equity of the system and contribute to the fact that Mexico has by far the lowest level of tax revenues in relation to GDP among the OECD countries. The main priorities for reform should be base broadening measures such as eliminating the tax preferences for agriculture, fisheries, publishing and land transportation; substantially reducing the vast number of zero-rated and exempted goods and services in the VAT system; and broadening the income base of individuals by taxing fringe benefits and eliminate the fiscal subsidy. Furthermore, increased taxation of property, in particular real estate, would be warranted from both a revenue-raising and distributional point of view. Finally, administration could be further improved through a ...