Unreported Cash Transactions Increase as Mexicans Avoid Unpopular Value-Added Tax Eric Martin - Bloomberg
go to original November 15, 2015

Mexicans increasingly are leaving their credit cards in their wallets and using cash instead to pay for everything from electronics to doctor's visits and even the plumber. This allows retailers and service providers to skip collecting a 16 percent value-added tax and pass the savings on to the customer.

In exchange, the businesses avoid creating a paper trail, allowing them to under-report their earnings to authorities and lower their income-tax bill.

The scheme may be a win-win for shoppers and the shops, but it's a blow for government coffers just as the nation needs the revenue more than ever. Oil income as a percentage of total government receipts has tumbled by almost half. That's partly because of the plunge in prices - Mexico's crude mix is down about 64 percent since its 2014 peak - but it's also largely by design.

After taking office in 2012, President Enrique Pena Nieto engineered a tax overhaul to reduce the government's dependence on the energy industry, ushering in a wave of higher tariffs on consumers and businesses that took effect at the beginning of last year. While the new system is boosting revenue, it also may be causing the spread of cash transactions.

"Whenever taxes increase, there's an increase in the incentive for people to evade them," said Carlos Capistran, the chief Mexico economist at Bank of America Corp. in Mexico City. "One way to do that is to use more cash."

Read the rest at Chicago Tribune

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