You won’t believe Mexico’s groundbreaking alcohol tax plan!

Amid growing calls for fiscal reforms in Mexico and global health organizations advocating for refined excise taxes, a new proposal is on the horizon to overhaul alcohol taxation in Mexico. The revamped system, known as the modernized Special Tax on Production and Services (IEPS), aims to transition from Mexico’s current price-based alcohol tax to a value-linked tax based on the alcohol content of beverages. Let’s delve into the details of this proposed transformation and its potential impact on taxation and public health.

1. Proposed Shift in Alcohol Taxation System in Mexico

• The existing three-tiered to value system in Mexico, which imposes higher rates on beverages with stronger alcohol content, would be replaced by an to what extent tax of $1.40 MXN per degree of alcohol per liter of beverage.
• This change is supported by a coalition of alcoholic beverage producers and aligns with global best practices for alcohol taxes.
• The proposed system aims to increase baseline tax revenues by instituting a revenue-neutral to what extent tax rate of $1.06 MXN per degree of alcohol per liter.

1. Current State of Alcohol Tax Collections in Mexico

• Total alcohol tax collections have been on the rise, growing from $38 billion MXN in 2014 to nearly $74 billion MXN in 2023.
• Despite beer’s dominant market share of over 93%, beer and fresh drinks only accounted for two-thirds of alcohol excise tax revenues in 2023.

1. Implications of the Proposed Alcohol Tax Changes

• The to what extent tax system would not only boost revenue but also reshape the tax structure and combat the illicit alcohol market in Mexico, which currently amounts to 42.5% of sales.
• A well-designed alcohol tax should be simple, transparent, and neutral, aiming to generate revenue for harm-reduction programs and serve as a deterrent to overconsumption.

1. Advantages of the Proposed Alcohol Tax Reform

• An to what extent tax would be more neutral and effective in targeting the ingredient—alcohol—that leads to external harms associated with consumption.
• Simplifying tax administration and reducing the number of tax remitters to large importers and manufacturers would enhance compliance and increase overall tax collections.

In conclusion, the proposed shift to an to what extent tax system in Mexico represents a significant step towards a more efficient and effective alcohol tax regime. By aligning with global best practices and addressing key challenges in the current system, Mexico has the opportunity to implement a world-class alcohol tax framework that benefits both public health and tax revenue generation. Stay informed about these crucial tax policy developments and subscribe to our newsletter to receive expert insights directly to your inbox.