Recently, a question popped up- does the automotive industry has too many tax incentives in Mexico? While some said yes, others said nope! This tug of war has put some stress on the automotive industry Mexico. However, it is important to understand the situation first.
To start with, it is first necessary to know that tax incentives for any industry are set for a purpose and they have some benefits and costs too. As quoted by the Economic Commission for Latin America and the Caribbean, Tax incentives for companies in Latin America and Caribbean is more of an incentive policy that will yield cost-effective results if it produces the advantages- like financial, social and environmental benefits will surely outweigh the expenses it generates.
In reference to this, Mexico and Chile are the most amazing nations to use cost-effective tax incentives. Speaking about the benefits included in the Mexican auto industry, it has deductions, tax deferrals and tax credits which are connected to investment and have a major share in the total financial incentives cost.
It is essential to know that, though tax incentives can become tax loss, not all expenses align with the incentives as some may just be tax benefits. The major goal of an incentive is to enhance a change in economic agent behavior. For instance, changing the composition of the GDP of Guanajuato from agricultural land to a manufacturing property. This is because of the use of tax incentives for the automotive industry Mexico.
Tax incentives for Mexican auto industry
According to the Mexican federal tax authority, the automotive industry of the nation has several tax benefits in comparison to those offered by other nations.
A competitive analysis was done to check the competitiveness of cars in Mexico, Argentina and Brazil. While Brazil is 30% costlier than Mexico to manufacture a car, Argentina is 60% costlier than Mexico for this purpose.
A major reason for Mexico to win this competitive ranking is because of its availability of tax incentives in the automotive industry here.
The production companies get a 25% income tax deduction for investment in the sector and a 30% credit for Research and Development tasks. The auto manufacturers are also exempted from indirect tariffs for IMMEX maquiladora producers.
All in all, it can be said that in comparison to the other nations, there are more tax incentives for Mexican auto industry.
The balance is present
Mexico isn’t one of the most productive automotive manufacturing nations. Finding a balance between the cost and profit is a challenge, especially when the benefits of having tax incentives have translated to thousands of job opportunities and several billions of dollars in investments.
The Bajio region in Mexico is the most dynamic automotive production location in the world. The basic to striking the perfect balance stands in the governance and transparency of the sector along with the right use of tax incentives for the Mexican automotive sector.
If the right balance is achieved, there will be tons of benefits and growth opportunities for the companies.