Date:01/09/11

Mexican telcom industry urges end to 3% phone tax

Representatives of Mexico's telecommunications industry called Tuesday for a two-year-old excise tax on phone service to be eliminated when President Felipe Calderon submits the 2012 budget proposal to Congress next month.

The 3% tax on phone service, in addition to 16% value-added tax, was introduced in 2010 among a series of measures taken to confront a projected shortfall in government revenue resulting largely from lower crude oil production and exports.

Santiago Gutierrez, president of the National Electronics, Telecommunications and Information Technology Industry Chamber, or Canieti, said at a press conference that the tax affected growth and investment in telecommunications, and was incongruent with the government's own development plan to promote connectivity and use of information technology.

He said that although the tax doesn't apply to the Internet, it affects Internet use because of the packaging of phone services.

Canieti and more than 30 other organizations representing different areas of the communications industry joined in calling for the tax to be lifted.

Several legislators, researchers, academics and company officials attended the press conference, in which they said telephony is key to development, and as a basic service shouldn't be taxed as a luxury good or one of which consumption is discouraged.

Jose Luis Peralta, a commissioner on the Federal Telecommunications Commission, or Cofetel, said he supports the proposal to remove the tax as it goes against what Cofetel is trying to achieve.

Gutierrez said additional growth in telecommunications would in the medium term more than compensate revenue lost by eliminating the tax. The government had expected to collect about 10 billion pesos ($800 million) from the tax in 2010, and collected just under MXN6 billion.

In the first half of 2011, the tax generated MXN3.4 billion compared with an expected MXN3.5 billion.

In the past decade, Mexico's telecommunications industry has consistently grown at several times the rate of the overall economy, including 14% growth in 2009 when the economy contracted 6.1%, and 12% in 2010 as gross domestic product expanded 5.4%.

Fixed-line penetration is around 18%, while mobile penetration at the end of the first quarter was 83 lines per 100 inhabitants, according to Cofetel, which attributed a recent slowdown in mobile growth and use to a maturing market and to the excise tax. Calderon has until Sept. 8 to present the 2012 budget proposal to Congress.

Finance Minister Ernesto Cordero said last week that the proposal won't include any new taxes, but also that the administration would be opposed to any measures that could compromise revenue and fiscal stability.

The Finance Ministry didn't have any immediate comment Tuesday on the call to remove the phone tax.

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