EconomyTax Waivers: More Problems, Fewer Solutions

Tax Waivers: More Problems, Fewer Solutions

(Expansion) – I recently discovered a new place to eat. The quality of the ingredients, the kindness and above all the great heart of the owners caught my attention to share their culinary creations with those people who, for various reasons, do not have enough money to pay for their food.

Without a doubt, this gesture should be recognized, but what would happen if, in a hypothetical exercise, the list of “beneficiaries” increased? Most likely, the growth and consolidation of the family project would be affected.

I keep thinking about how similar this example is to one of the problems that has plagued the country’s public finances for many years. In Mexico and the world, the concept of revenue waivers —previously known as tax expenditures— is used to identify the amount of resources that the federal treasury stops collecting due to the use of preferential treatments applied to taxes.

Unlike in the kitchen, where you can see and interact with people to determine whether or not they can access the benefit, in the revenue waivers it is not clear who benefits from the different preferential treatments.

According to the Ministry of Finance and Public Credit, the aggregate amount of revenue waivers increased this year compared to 2021, which was mainly associated with the IEPS tax stimulus that was applied to fuels, as well as the zero rate VAT on food, medicine and drinking water supply.

Following the analogy of the kitchen, this increase would be equivalent to granting discounts, subsidies, credits and free meals in a general way. Although in both cases an income is lost, the loss turns out to be more costly when the effectiveness of the support is not guaranteed and monitored, as in the case of the treasury.

More collection waivers is synonymous with lower income. Therefore, it is important to carry out an in-depth evaluation to identify which ones should be eliminated in the short, medium and long term. The idea is to avoid the discretionary use of preferential treatments, as well as to guarantee the existence of incidence and effectiveness evaluations that support, failing that, their permanence. A useful example to illustrate the importance of this issue is the fiscal stimulus for fuels.

All tax incentives have their origin in the Federal Income Law, in Presidential Decrees or in the Income Tax Law. In the particular case of the IEPS tax incentive for fuels, this is established by Presidential Decrees, so it does not need any justification to be implemented.

The objective of the stimulus is to prevent the increase in prices in the final consumption of gasoline in our country, as a result of the high costs of hydrocarbons at a global level. Official figures indicate that the current stimulus amounts to 328.3 billion pesos and went from representing 0.3% of GDP in 2021 to 1.1% in 2022.

Various specialists have pointed out that this support is a regressive measure, since it benefits more high-income people, since, by making more use of their vehicles, they consume more gasoline. The richest half of the country, that is, those who are in deciles V to X, absorb 80% of the subsidy, while the lower income half (deciles I to V), benefit from only 20%. % of the stimulus. The percentages indicate that the targeting of support is not being given adequately and that it is necessary to rethink it.

As you can see, this generalized measure, which does not distinguish income levels, could actually be a large-scale representation of what happens in the kitchen. When meals are provided indiscriminately, income is lost, those who really need it benefit very little, and those who can pay do not.

In the specific case of gasoline, it would be better to focus the stimulus on diesel, since it is the fuel most used for freight transport. This action would have a greater impact on lower-income households, since it would be helping to contain the increase in food prices that affects them the most.

Like the fiscal stimulus for gasoline, there are other preferential treatments that can also be analyzed from the same perspective. Identifying the beneficiaries in a timely manner and guaranteeing the efficiency of the support can contribute significantly to limiting and reducing the growth of collection waivers in our country, especially in times of economic uncertainty such as the ones we are experiencing today.

The reality is that the complexity of continuing to meet spending needs will cause, sooner or later, the federal administration to carry out an exhaustive evaluation of revenue waivers.

Editor’s note: Arturo Franco, Public Finance researcher at Ethos Public Policy Laboratory. Follow him on LinkedIn. The opinions published in this column belong exclusively to the author.

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