Tax Evasion and Public Spending in Mexico

It is necessary to strengthen the state's tax collection capacity to address economic problems, impoverishment, and high inequality, which must be accompanied by a clear discourse: why do we want to increase taxes, who should pay them, and explore new mechanisms for public oversight of spending.

This was stated by José Ignacio Casar Pérez, researcher of the University Program for Development Studies (PUED) of the UNAM, who explained that the need to increase income must pursue the promotion of development, that is, to favor the condition of services, improve income distribution and public investment to increase growth.

During the Forum "Inequalities and Taxation", as part of the activities of the 9th Latin American and Caribbean Conference of Social Sciences. Inequalities in Latin America and the Caribbean. Knowledge, struggles, and transformations, CLACSO 2022, he said: The fiscal issue is not a technical but political and moral. It is part of the basic arrangement of society as to what are the tasks it must face collectively and how its cost is distributed among its members.

For the expert, persuasion and political action are indispensable to increase them, but this is complicated in an era in which the parties are guided by public opinion and the increase of contributions is not popular. It is necessary to create awareness of the need to promote a fiscal modification and provide the State with more resources, as well as to call for solidarity to fight poverty and inequality.

Any reform must "hit" a small percentage of taxpayers with the highest incomes. Progress can also be made in the progressive collection of Income Tax, increase property tax collection and, for example, analyze whether all food should be exempt from Value Added Tax (VAT).

"Why don't we pay VAT on smoked salmon imported from Norway? The same thing happens with fuels, the gasoline tax impacts the four highest deciles the most. If we want to eliminate the impact of the measure on public transportation, we can think of compensatory actions to contain the increase in this public service", he explained.

Meanwhile, Mónica Unda Gutiérrez, an academic from the Department of Political Science and Economics at Marquette University, United States, agreed that contributions, by nature, are unpopular, so the consensus is required to promote fiscal pacts. Their political acceptability requires clarity on who will bear the brunt of a new one and how much of it will serve a particular purpose.

"To the extent that we see that public spending responds to the needs of citizens, that it is efficient or less corrupt, we could convince taxpayers that it is in their interest (to pay more taxes)," she said.

For Mexico this is important because the tax system faces several problems: it has poor treasuries, as it collects the equivalent of 13 percent of the gross domestic product (GDP) and only 10 percent of state revenues are its own. There is tax evasion, tax shelters, and low progressivity. For example, in 2016 total evasion was estimated to be equivalent to 2.6 percent of GDP, according to a study commissioned by the Tax Administration System.

Political in nature

Mariel Miranda Miranda and Santiago Martínez Hernández, researchers of the Democracy, Anticorruption and Inequalities Program of the civil association Transparencia Mexicana, stated that the fight against corruption is a way to fight inequalities in the country. According to INEGI, in 2021 this phenomenon cost approximately nine billion pesos.

According to Oxfam, 70 percent of the population considers it legitimate not to pay taxes if the government is corrupt. Latinobarómetro 2021 revealed that 26 percent of respondents in Latin America and the Caribbean managed not to do so; the three reasons are: their dissatisfaction with democracy, distrust in institutions, and dissatisfaction with public services.

Another reason why more money is not collected is that the State is captured by actors with interests that prevent agreements to reduce inequalities from being reached. For example, in the United States and Chile, legislators have stopped initiatives to regulate industries or regulate the use of goods such as water, in which they have a conflict of interest.

In Mexico, although government employees are obliged to make their interests public, it has been detected that 90 percent hide them, 54 percent do not present this type of declaration and 33 percent say they do not have any. In addition, congresses censure this type of declaration.

Marcio Pochmann, an academic at the Economics Institute of the State University of Campinas, Brazil, said that the generation of new taxes is not a technical problem but of a political nature, since it is necessary to build agreements to achieve greater taxation among the wealthiest.

He explained that in that Latin American country, for example, the population whose income is up to two minimum wages pays 40 percent -through prices- to pay taxes, while those who earn five wages contribute 16 percent.

To this must be added that in the current political convergence, the State is perceived not as part of the solution, but as the central problem, and it would seem that the more it withdraws, the better. The expert also pointed out that until now, political majorities have served more to protect the rich than the poor.