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Mexico: Proposal to reduce VAT rate to 10% (COVID-19)

Mexico: Proposal to reduce VAT rate to 10% (COVID-19)

A tax legislative proposal, presented to the Mexican Congress in June 2020, would temporarily reduce the value added tax (VAT) rate to 10%, from the current rate of 16%, for the remainder of fiscal year 2020. This reduced VAT rate would be intended to provide relief regarding the coronavirus (COVID-19) pandemic.

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The proposed VAT rate reduction would be effective from the date of publication of the enacted legislation in the official gazette until 31 December 2020.

The reduced VAT rate would not apply for the “northern border region”—where the VAT rate is already set at 8%—and would add a new “southern border region” where the 8% rate of VAT would apply.

The proposal would define the geographic location of both border regions to include the 20-kilometer border strip parallel to the international borders to the north and south of Mexico.

  • In the northern border region, new areas to be added to the existing northern border region would include the entire territories of the states of Baja California, Baja California Sur, and Quintana Roo; the municipalities of Caborca, Cananea, and Sonora; and part of the State of Sonora (as defined in detail).
  • In the southern border region, eligible areas would include the 20-kilometer border strip parallel to the international boundaries and also the municipalities of Calakmul, Candelaria, Campeche, Amatenango de la Frontera, Benemerito de las Americas, Bejucal de Ocampo, Cacahoatan, Comitan de Dominguez, Frontera Comalapa, Frontera Hidalgo, La Independencia, La Trinitaria, Las Margaritas, Maravilla, Marques de Comillas, Mazapa de Madero, Motozintla, Ocosingo, Palenque , Suchiate, Tapachula, Tenejapa, Tuxtla Chico and Union Juarez, Chiapas, and Balancan and Tenosique, Tabasco.

The legislative proposal is pending the congressional process and could be subject to changes.

Read a June 2020 report prepared by the KPMG member firm in Mexico

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