Mexico may bring food and medicines into VAT net

Wed 14th Aug 2013

The new government is making plans to bring food and medicine within the Mexican Value Added Tax regime, and reclassify other goods to the standard rate.  This is part of its plans to grow the share of indirect taxes take compared to GDP.

Mexican VAT take needs to improve

Most European and other countries levy VAT on food and medicine – see our European VAT rates pages.  They are often subject to the lower VAT rates – the UK VAT rate on food is still nil.

Currently, these basic goods are nil rated for Mexican VAT, meaning suppliers can recover any input VAT on their own costs of production.  The government aims to target processed food, but leave the staples without any VAT levy.  This would raise over $50m per annum for the Ministry of Finance.  Any foods that do not go to the standard VAT rate would instead be exempted.  This would save the state several millions by denying the producers the right to reclaim the input VAT.

The Mexican taxable base has shrunk by over 20% in the last twenty years, making it the worst performer in Central / South America.  This has been offset by the increased revenues from oil exploration.