Companies Could Suffer as a Result of the Income Tax Law Reform
Experts warned that the reform of the Income Tax Law (ISR), which is included in the 2027 Economic Package, could lead to a suffocating tax collection policy for businesses.
In the 2027 Economic Package, the executive branch included a reform to the Income Tax Law, which could generate up to an additional US$824.8 billion in revenue.
As part of the changes to the Income Tax Law, control mechanisms must be established to prevent abuse of deductions and tax losses by companies with revenues exceeding US$2.9 million.
According to the initiative’s rationale, these controls have been proposed because it has been found that some companies pay less income tax by using false invoices for up to 10% of their expenses in order to evade taxes, or by abusing tax losses to pay less tax.
Specifically, it has been proposed to cap corporate deductions at 96.67% of their taxable income (or 99% for those who deduct less than 96.67% of their income).
Likewise, the proposal seeks to limit the carryforward of tax losses from prior years to 50% of taxable income (down from the current 100%), while extending the deduction period from 10 to 20 years.
Guillermo Mendieta, spokesperson for the Technical Commission on Tax Audits of the Mexican Institute of Public Accountants, emphasized that while it cannot be ruled out that there are cases in which tax deductions or losses are abused, there are also cases of taxpayers who legally use these mechanisms to reduce their tax liability.
He warns that the proposed controls will also affect those who are legitimately seeking to deduct up to 100 percent of their income when they have excess expenses in a given tax year.
“The innocent will be paying for the sins of the guilty. It would also affect those taxpayers who don’t cheat,” he warned.
Because of this, Mendieta explained that the goal of the proposed controls is not only to combat and reduce tax evasion but also to boost income tax revenue in 2027.
In the 2027 Federal Revenue Law, the federal government has set a target of a 6.9% increase in its income tax revenue, bringing the total to US$134.4 billion.
