So How Do Taxes Work Around Here?

If people would only pay income tax, they would get an amazing array of benefits
BY: CATHY WATKINS

You might be surprised at all the benefits the Mexican government provides to those who pay their taxes. However, up to 6 in 10 of Mexico’s workers don’t pay taxes or receive the benefits because they work under the table at such jobs as buying and selling goods in the street and regulating and collecting taxes from these mobile vendors is a challenge. They sell everything from tourist items to tacos, cigars, and jewelry, brooms, plants, and furniture. On the weekends many work in the tianguis -open air markets.  That’s a large group of people who are left out of what has become a pretty good safety net.

  Like the United States, Mexico has a progressive income tax system that’s based on income brackets.  Annual tax rates for individuals vary from 2% to 35%. An income of $350 or less per year would pay 2% while incomes over $230,000 are taxed at 35%.  There is no poverty line here to be exempt. Yes, people making  only $30 a month are required to pay some taxes, but 60 cents may not even bankrupt that person, and by signing up to pay it, they get huge benefits. Still, most won’t do it.   For people who pay into the system, the government provides programs for housing, health care, child care, education, and retirement. Many of these programs do not depend on how much one contributes, so the poorest get the biggest bang for their peso. But again, so many of them will not join the system. 

Let’s talk about payroll tax.

There is a tax for the National Workers Housing Fund which has the acronym INFONAVIT.  Both the employer and the employee pay into a savings fund towards this.  Employers are required by law to furnish housing to their employees, but we’re not talking company towns here. This requirement is met by contributing to the Mexican federal government agency INFONAVIT. The payment is equal to 5% of the employee’s salary. After building up credits the employee gets to purchase a house using a point or credit system.  Points are earned based on the number of weeks they work and how much they contribute, and favors the employee.  There are two options to use the points;  If they are young, a person can use it to buy a house, land, or renovate an existing house.  The other option is to wait a long time, up to 30 years, before using the money.  By then there will be enough points in their account to buy a pretty grand house for their retirement.  Contributions can be made as long as the person is working. If you qualify with your points, the house is yours for no additional money. Should a family decide to buy a more expensive house, they would have to pay the difference.

 INFONAVIT used to be entirely run by the government, including they would build your house. No more. That became to problematic with corruption and sub standard housing. Now the employee just takes their credits to the seller of whatever home they want, and plunks them down as if they were money. Uncle Jose will exchange the employee’s credits for money for the bank or the seller.. And if you buy a house through  INFONAVIT and are still piling up credits at work? Buy another house and rent it out.  INFONAVIT is a very good program for those who take advantage of it.

Social Security here includes a retirement savings tax.  This tax is a part of the social security payment, but is deposited bi-monthly (every two months) in a special bank account. (Payment equal to 2% of the employee’s salary including benefits).   To qualify they must have earned  500 weeks of credits. That’s about 20 years.  A person who meets the requirements can retire at age 60 and earn 75% of his salary or wait till age 65 and earn 100% .  The salary cap is at $3,000 a month.  By earning the maximum, you would get about $300 a month.   If you earn more than the cap, you don’t get more benefits.   It also includes benefits for your spouse and children if you die. 

Social security in Mexico also encompasses your health benefits. Mexico has national health insurance.  Employers must make monthly payments to IMSS (Mexican Social Security Institute) for medical care for workers, while the amount an employee pays in is based on his income.  There are two systems:  The one for government employees is called ISSSTE and all other employees participate in IMSS.

 If you are a business owner or an entrepreneur, you can inexpensively purchase Seguro Popular from the government.  The hospitals in these plans are funded by the government and run by the state.  All a person’s medical expenses are covered in the system, so it’s totally free.  If you need specialized treatment, you are covered to go to a bigger city such as La Paz or Guadalajara.  Some of the drawbacks are an extensive wait time to see a specialist,  often a three month wait or longer. Suguro Popular would not be convenient for a bullet wound or a heart attack. But then there are long waits for IMSS and ISSSTE also.

The government also owns and runs day care centers which provide free child care for working mothers, many run by independent contractors.  The centers are open from 7:00 am to 3:00 pm.  One drawback is a lack of capacity and a very long waiting list to get in.  As a result, the rules and regulations are strict.  A child can’t attend if he is sick, and a doctor’s note is required to return.  If your child misses one day, a letter with explanation is required.  You may risk being kicked out of the program for missing two days or more. Those slots are sought after, and they need to be used, not empty.

OK, we’re done with payroll taxes, moving on;

The public school system is free for students and is mandatory up to 9th grade.  High school is almost free.  A family only has to pay around $10 per year and purchase a few supplies. However, teachers are known for asking for more money from the parents who are very resentful of this practice.. Also, there are so many holidays, not to mention teacher strikes, it sometimes seems like kids are hardly ever in school.  During the registration process, a family might camp out in line to assure their children even get in. Schools are so over burdened they work in split shifts with some kids coming home in the dark and other kids going to school in the dark.

 There are government funded universities that are almost free costing around $25 a year.  These universities are able to form their own rules and system, so they are not regulated by the government.  Government run universities always include the word autonomous in their name, and the students are known for their activism and protests.   Just because it’s free doesn’t mean the quality is poor.   Many of these universities have excellent reputations.  The National Autonomous University of Mexico City (UNAM) has been judged the 80th best in the world. That one university has more than 100,000 people enrolled.  Of course more students want to attend than there is room for, so a student must qualify to get in. 

President Pena Nieto has pushed hard to get more workers enrolled in the tax system, but it’s an uphill battle. There is not much information on the programs that are available to them, and they have a culture of avoiding contact with the government. Then there is the trust issue. Mexicans are so used to corruption, they often feel as though their taxes will just go into somebody’s pocket and will not come back to them in benefits and services.