Garment units in Mexico’s border regions to pay 16% VAT

November 29, 2013 (Mexico)

Garment manufacturing units in Mexico’s border regions would have to pay value-added tax (VAT) at the rate of 16 percent from January 1, 2014, as compared to the current VAT of 11 percent.   It is because Mexico’s Congress has passed a tax overhaul proposal of President Enrique Pena Nieto that would make changes to customs practices and raise the VAT on export assembly plants (known as maquiladoras) in the regions bordering the US.   The VAT increase in the border region states like Baja California Norte, including Tijuana, Rosa Lido, Ensenada and Tecate, will bring the tax in these area at par with the 16 percent VAT currently being paid by the businesses in the rest of Mexico.   The maquiladoras along the US-Mexico border had enjoyed a low tax rate for years, as they were intended to increase competitiveness of these regions with US cities, and thereby attract businesses to Mexico.   The new rules also mean an increase in the retail sales tax along the border, from the current 11 percent to 16 percent, to be effective from January 1, 2014.   The new reforms would especially trouble the Chinese-American garment manufacturers that produce apparel in the border areas between the US and Mexico.   Industry analysts opine that the American firms operating in the border areas might cut-down their operations, but may not move their plants back to the US, although President Barack Obama has outlined proposals to revive American manufacturing sector and bring back jobs to the US.   In 2012, there were 8,750 active apparel companies in Mexico, according to Cámara Nacional de la Industria del Vestido (CANAIVE or National Chamber of the Clothing Industry).