Last week, the Chamber of Deputies approved two resolutions on the use and exploitation of land and national resources. The first one relates to a modification on the 27th Constitutional article, allowing any individual to purchase land at terrestrial and marine borders, with the purpose of eliminating the simulation and the chain of strawmen through which foreigners acquired properties at these areas. The second one regards the approval to a 5% tax rate to the mining companies’ operations in order to serve as funds for the development of the municipalities in which they are established (the current number of these entities is around 612). The controversy was immediately unleashed. On one hand, there were people who labeled Congressmen as traitors for “surrendering” beaches to foreigners. On the other hand, mining companies argued that the tax imposed to them was inadequate. However, let us dig deeper on the aforementioned legal changes.
The issue of frontier-adjacent properties broke a historical taboo fueled by the rhetoric on national sovereignty. The truth is that this practice already existed de facto through trusteeships and different strawmen. Even though the reform was not extended to businesses or hotels, its virtue lies in the legal certainty received by real estate buyers, many of them senior retired foreigners with substantial pensions that could end up being spent on Mexican beaches. This change will be successful if it comes with an improved range of services in order to make investing in a house something attractive and, above all, establishing a retirement house in Mexico.
Furthermore, the 5% tax rate to the mining companies’ operations can be analyzed along with the measures taken by the federal government to increase its tax collection (as can be observed in the rise of the Mexican Social Security Institute of employer-employee quotas). This is also a response to a tax collection decrease of 20.9% in the first quarter of this year via oil resources and a 2% drop in non-oil revenues. The proposal has the distinctive feature of pretending to foster the development of cities and communities nearby mining zones by using the aforementioned revenue. 70% of that tax would go directly to states and municipalities (where half of it would be received by the state where the mine is located and the other half would be received by the municipality) and the other 30% would be used in the states’ private equity fund of the Ministry of Finance. Even though it was stated that the money obtained would remain in the communities where the mines are located, it is still not clear how this expenses will be controlled and what can they spent on – taking into account that most of municipalities have a tremendous opacity. These charges reinforce the idea that the current administration is looking to protect itself in case the achievement of an integral tax reform (expanding the tax base, a rise or a generalization on VAT and new types of taxes) turns out too difficult to concretize during the second half of this year. In fact, it suggests that the main objective regarding the matter is increasing tax collection through any means possible in order to spend more.
Even though both proposals will not be discussed at the Senate until next September, it is important to demystify, in the case of frontier-adjacent properties, the cheap nationalistic speech that Mexican land would be surrendered to invaders – for example, in a complaint, owners will not be able to ask protection from their governments. In reference to the mining issue, this constitutes a red flag in which the tax recollection, distribution and use should be closely monitored. The major risk is to keep charging a lot of taxes to a small number of individuals, not broadening the tax base and giving resources to local governments, whose opacity is known to everybody.
CIDAC
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