Mexico's senate votes on tax hike on October 30. (Frontera photo)
Baja Californians are bracing for what some economists and political leaders have warned will be a major financial crisis after Mexico's senate voted in the wee hours of Wednesday, October 30, to increase the state's sales tax to 16%, bringing it in line with the national sales tax charged in most of the rest of the country.
The new rate, scheduled to take effect on January 1, 2014, is an increase of 5 percentage points over the current 11% rate of what is called the IVA, or value-added tax.
For decades, some border areas like Baja California have enjoyed special status, with a lower IVA to keep them competitive with their international neighbors. But a budget proposal presented by Mexican president Enrique Peña Nieto would eliminate that favored standing and make the 16% federal sales tax standard across Mexico.
Since Peña Nieto first included the IVA increase in his September 13 budget package, a growing chorus of Baja California interests — academics, union leaders, business owners, industrialists, and politicians, among many — have issued warnings of what would likely happen should the president's plan win approval.
Opponents claim huge price increases will ensue, unemployment will soar as businesses trim staffs, inflation will rise, businesses will close or downsize, an already moribund tourist industry will be pushed over the edge into extinction, and visa-holding consumers able to cross the international border will abandon Baja California businesses to shop in the U.S.
Those without a visa, mainly the poor, will have no choice but to pay the 16% sales tax.
Opponents from the right, led by the "National Action Party" (PAN) argued in the senate that the increase would be deadly for business and industry, while opponents from the left, led by the "Party of the Democratic Revolution," argued the tax is regressive and unfairly hits hardest at Baja California's poorest residents.
But in an early morning session on October 30, the president's "Institutional Revolutionary Party" (PRI) and its allies prevailed on a 68-55 vote, giving general approval to the broad budget outline.
Amendments by the PAN that would have eliminated the IVA increase were defeated, leading Reuters to report: "The opposition conservative National Action Party (PAN) abandoned the session, with PAN Senate leader Jorge Luis Preciado arguing that his party's efforts to amend the bill were pointless because voting had been pre-arranged. A recess was ordered and the Senate later agreed to reconvene the session at midday on Wednesday."
Opponents of the increase have repeatedly said that, should they lose in the legislature, they will turn to the courts for relief, seeking what is called an amparo, similar to an injunction in U.S. law, to block the tax hike from taking effect.