The Tax Foundation, an NGO founded in 1937 and located in Washington, released a couple of days ago the eighth edition of its International Tax Competitiveness Index or ITCI (Fiscal Competitiveness Index) which, according to what it notes in its introduction: “ … seeks to measure the extent to which a country’s tax system adheres to two important aspects of tax policy: competitiveness and neutrality. A competitive tax code is one that keeps marginal tax rates low (…) If a country’s tax rate is too high, it will spur investment elsewhere, leading to slower economic growth (…) According to the Organization for Economic Cooperation and Development (OECD), corporate taxes are more harmful to economic growth and taxes on personal income and consumption taxes are less harmful. Real estate taxes have the least impact on growth. “
The ITCI makes it possible to compare the tax codes of 37 countries and explains why some are good or bad reform models.
The ITCI 2021 includes 37 of the 38 countries belonging to the OECD. Costa Rica does not appear, which last May joined the organization.
The first 10 places are occupied, in descending order: Estonia. Latvia, New Zealand, Switzerland, Luxembourg, Lithuania, Czech Republic, Sweden, Australia and Norway.
Estonia ranks first for the eighth year in a row “for four positive features of its tax system: 1) a 20% tax rate on corporate income that only applies to distributed profits; 2) a flat 20% tax on individual income that does not apply to personal dividend income; 3) your property tax applies only to the value of the land, rather than the value of real estate or capital; 4) exempts national corporations from 100% of internal taxes on profits obtained abroad ”.
Mexico, which from 2014 to 2019 ranked 32nd in the ITCI, dropped to 33rd in 2020 and appears in that position this year, above only Portugal, France, Poland and Italy.
For the Tax Foundation, some strengths of the Mexican tax system are: “The income tax rate for individuals on dividends is 17.1%, below the OECD average of 24.1%; corporations can deduct property taxes when calculating taxable income; and allows last-in-first-out treatment at inventory cost ”. However, the system has some weaknesses: “The average time to comply with corporate and consumption taxes is estimated at around 100 hours per year for each tax; the VAT base is the narrowest in the OECD, with only one third of final consumption taxed; Mexico has a corporate tax rate above the average of 30% (the OECD average is 22.9%) ”.
Thirty-one countries have more competitive tax laws than those of Mexico, and yet President Andrés Manuel López Obrador not only refuses to promote a tax reform that changes the situation, but also acts to drive national and foreign investors away from the country.
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Reference-www.eleconomista.com.mx