MEXICO CITY A tax reform proposal by Mexican president Enrique Peña Nieto "puts our operations at risk," local automotive associations warned this week.
The proposed tax changes "would mean an increase in production costs and a competitiveness loss" for the whole Mexican automotive industry, the associations asserted.
Mexican automakers association Amia, automotive distributors group Amda and auto parts manufacturers association Ina are among those raising the issue, criticizing the proposed creation of an automotive tax that would establish a value-added tax (VAT) on imports of machinery, equipment and raw materials.
The current 11-percent VAT rate applicable at the Mexican-U.S. border would increase to 16 percent, which would affect the sales of new cars and increase imports of used vehicles into Mexico, the associations said.
Imports of used vehicles increased 52 percent in the first half of the year to 306,826 units, equivalent to 61.1 percent of total new car sales in Mexico, according to Amda.
Mexicos government also wants to establish an additional tax of 10 percent on the payment of dividends abroad, which could reduce future foreign investment in the Latin American country, the associations warned.
Other proposed measures that look to reduce the minimum price of cars for tax deduction matters would "have an impact on new car sales in our country, in a scenario where domestic sales are at similar levels as 10 years ago," the groups said.
Despite the complaints, the Mexican automotive industry "has established an important dialogue with the Mexican government" on the issue, the associations said. They will now "seek that the measures included in the tax reform do not affect the automotive sector."
The tax reform bill presented by the Mexican government looks to boost government revenue by about 240 billion pesos ($18.3 billion).
Mexican steelmakers have already criticized the bill, noting that they were seeking to negotiate the "modification or elimination" of some taxes.
Mexico was the eighth-largest automotive producer in the world last year and the fifth-largest auto parts manufacturer.
The automotive industry, which is expected to invest about $16 billion over the next few years, is key in Mexico as it drives the countrys steel sector, which will invest $11.5 billion over the next four years.
A version of this article was first published in AMM sister publication Steel First.