[SNE] 2019-2024 Northern Border Program (12th part)

VAT Decreased

The first step to understand the issue of low VAT in the proposal of AMLO is to explain each tax involved, in this case, the VAT and US Sales Tax.

Then, we can make a conclusion about it.

What is VAT?

The Value Added Tax is, in principle, a federal tax that is caused in any productive chain of all goods and services transacted in Mexico. However, for various reasons, more political than technical, many amendments have been made to the Law, which has biased the rate to certain goods or services, regional differences have been made, and sectoral benefits of, for example, Tax are attracted. Income to the VAT.

The VAT, in an origin, could become the tax, which at almost any rate, causes not only a stable collection, but even and with emphasis, a cascade effect that inhibits tax evasion in ISR, almost automatically and very cheaply for the government; the above yes and only yes, the VAT was approved in all goods and services fungibles of the whole Nation.

And it is that its legal, economic, financial and even mathematical structure, causes that the economic agent in a productive chain that does not invoice and therefore does not charge VAT to his client, will cause him to have to have paid him to his supplier without the possibility of accrediting That payment and keep the cost of full VAT at your expense, instead of just paying a fraction and transferring the obligation to the next economic agent.

That is, the economic agent of the example, when acquiring goods from suppliers to do their economic activity and selling to customers, pays VAT to the supplier. That VAT already paid without the inherent link of business to its structure of costs of its economic activity could recover at least partially. But only if the economic agent in question, invoices, and charges the respective VAT to his client, causes a VAT income that in principle should be paid to the SAT, but the amount goes down by crediting the VAT paid to the provider, leaving him a VAT payable to the SAT much lower than what you had paid to your provider.

But to lower the amount of VAT to pay, not only must charge the customer but do so by means of an invoice, which in turn triggers the obligation to pay ISR. And a well-carried tax accounting then would imply at least in theory, having to formalize all the expenses of the company to deduct them and properly lower the ISR to pay.

If there is an approved VAT, it is assumed that the economic agent who finally pays it in full, is the final consumer of goods and services, since he has no way to deduct expenses or VAT to charge a subsequent consumer. So for the final consumer, it is an element that adds to the base price automatically.

This logic of VAT is changed when, for various reasons, it is modified or worse differentiated by good and/or regions. For its virtue to work, it must be homogeneous throughout the national economy.

Now, virtue theoretically works at any homogeneous rate. But surely there will be some incentive not to charge it, if the ISR to be generated when billing is sufficiently high, with respect to the savings to be achieved by offsetting the VAT paid to the supplier with respect to the VAT to be collected from the final customer. Therefore, studies have regularly pointed to a homogeneous rate of 10% or higher. But the distortions with the differentiation of rates, and the need to use the tax as a simple means of collection, then the main rate had to be raised to 16%.

(continues part 13)