We are all well aware of the current situation and the state of the world following the COVID-19 outbreak and spread of the pandemic. Of course, Mexico is no exception and the pandemic has reached a critical point so that social distancing has become the norm. With this, ahead we will briefly comment on the current state of business in Mexico, what measures the Government has implemented in general and their position with regards to taxes as well as some very brief ideas that companies may evaluate to assist them with their tax position or cash-flow.
On March 30, the General Health Council published the agreement in the Federal Official Gazette declaring the SARS-CoV2 (COVID-19) epidemic as a health emergency and that the Ministry of Health will determine all the necessary actions to manage to the emergency, with effects until April 30, 2020. Consequently, the Ministry of Health published its Agreement on March 31, 2020 establishing the extraordinary measures that will be implemented. In general term, this agreement ordered the immediate suspension of all non-essential activities in both government and private sectors, setting out certain guidelines to determine which activities will be deemed essential.
Note that the tax and revenue collection activities are identified as part of the essential sectors of the economy and therefore, the Tax Administration Service has not been included as one of the Government agencies to close down, while the majority of the Government agencies such as Senate, House of Representatives, Foreign Relations, Economy, Education, Transportation, among others have. Courts have also suspended their activities, with the exception of the Tax Administration Service, most Government Agencies have officially issued agreements establishing that all official terms are also suspended.
Furthermore, given the lack of quick reaction from the Government, and mainly following the Ministry of Education as the first one to officially cancel all activities (including the education system), a significant amount of companies went into “home office” mode starting March 20 and increasing since then. Restaurants, hotels and other services have begun to close as well, leading to a complete slow-down of the economy as a whole.
From the tax side, although several attempts were made from the different business associations and chambers in the country, the Tax Administration Service did not suspend any of the terms for audits or filings, including the annual FY2019 filing, which was due on March 31. Of course this has been highly criticized considering also the fact that the OECD clearly issued recommendations for Governments including granting tax incentives (both economical and extensions) in order to help companies with their financial situation.
In fact, this even resulted in one company filing an constitutional injunction (direct amparo) action against the Federal Government claiming relief against the lack of incentives given the situation which was initially granted by a Local District Judge. Although this may not seem to have many merits from a technical perspective, it is proof of discomfort in the business community.
A different situation has been seen at the State level, in which a lot of the States (Aguascalientes, Baja California Sur, Coahuila, Colima, Durango, State of Mexico, Guanajuato, Jalisco, Nayarit, Nuevo Leon, Quintana Roo, Sonora Yucatan, Guerrero, Hidalgo, Michoacan, Morelos, Oaxaca, San Luis Potosi, Sinaloa and Zacatecas) have indeed issued agreements granting the extension, deferral or reduction of local taxes such as payroll tax, lodging tax and property taxes. Mexico City and Queretaro will offer microloans and direct cash benefits respectively. Baja California, Campeche, Chiapas, Chihuahua, Puebla, Tabasco, Tamaulipas, Tlaxcala and Veracruz have yet to confirm if any incentives offered or not.
Instead, at the Federal level, the President offered a conference this past Sunday April 5 to discuss the actions taken by the Government to alleviate the situation with, among others, the following:
Direct support to 190,000 people in the fishing industry.
Direct support to mothers and fathers to maintain 31,000 schools
Confirmation of the existence of resources to hire 45,000 doctors and nurses
Recruit 31,000 elements for the Army, Navy and National Guard.
Use of MX$35,000,000,000 (approximately US$1.5bn) from the National Security Institute for State Workers to giver personal credits to 670,000 state workers.
Housing Funds Institutes will destine MX$177,000,000,000 (approximately US$7.7 bn) to grant loans mortgage loans.
Commitment to not increase taxes or create new ones.
Increase of gasoline production and destine 400,000 additional barrels per day to not decrease the value of exported oil and reduce the purchase from abroad, providing PEMEX an additional MX$65,000,000,000 (approximately US$2.8 bn) and reducing their tax burden.
Confirmation that the Santa Lucía Airport, Mayan Train and Oil Refinery constructions (all very controversial) will continue.
As it can be seen, the Federal Government’s plan of action is ambiguous and at the very least, falling short of what will be needed, leaving us with a negative economic outlook.
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