The tax reform that the President of Mexico, Enrique Peña Nieto, proposed will be up for approval in the next few days, and the consequences of it have been showing up throughout the different economic sectors, and the Business sector warns that if approved, consumers and factories will leave, looking for other countries in which they can do business.

The economic losses for the northwest region of Mexico, specifically Baja California, are already quantifiable. Increasing the Value Added Tax (VAT) from 11% to 16% will represent losses for the state by as much as $8k million dollars, and that's just the start.

The National Chamber of Commerce in Tijuana (CANACO) is warning that consumers will likely prefer to go to the United States to go shopping, causing the leak of capital to increase by 30%, meaning that Baja Californians will spend their money in American shopping malls in order to compensate the increase in prices in Mexico.

Karim Chalita Rodriguez, President of CANACO announced that if they continue this course and raise the VAT in the border, they will only strengthen the practice border residents have of purchasing their goods in the United States, which would increase the amount of consumers who do this by a significant amount.

Currently, Baja Californians spend around $6k Million Dollars annually shopping in the United States, since they consider that the prices are much better, with the new tax reform, business owners estimate that it would reach $8k Million Dollars.

Other adverse effects that would also skyrocket with the tax reform would be that of contraband: "It would increase contraband and the products that they offer, because if the market demands it, they will reach the consumer, even if it's not by legal means, because the alternative to buy it elsewhere will always be available" Chalita stated.

Border residents will find a way to satisfy their needs my any means necessary.

Factory Withdrawals

For a long time now, Tijuana has been considered the "World capital of television", however in the few years that has changed, thanks to the insecurity crisis that affected the region, because of this foreign companies have withdrawn their investments in Baja California.

According to Tijuana's Economic and Industrial Development (Deitac), some of the more quantifiable losses up until 2012 were $200 million dollars in investments, 4 mega investments with North American capital fell apart, these investments would have brought in somewhere between 25 to 50 million dollars.

Despite the partial recovery Tijuana has been experiencing, the manufacturing sector is once again feeling threatened, this time by the tax reform the federal government led by the political party PRI plans to implement. Federico Serrano, President of the Manufacturing Industry Association (AIM) informed yesterday that it would be a severe blow to the industry.

"This definitely leaves us out of the competition, it could also cause investors who were looking to Mexico to expand to think twice, for us this is very concerning", he warned.

He also pointed out that investments could be seriously hurt, both new ones as well as those that have been established; they are not attractive taxes and they will scare off investors. Currently there are 166,175 people that are employed by the manufacturing industry in Tijuana.

The manufacturing sector fears that investors who have already settled in Baja California will opt for leaving to more economical countries like China: "If we analyze the situation, Mexico is the country that pays the highest tax rate compared to other countries under the same circumstances, and this would affect us greatly".

The business sector of Baja California has already confirmed that they will begin a block against the homogenization of the VAT in the border, given that it would bring about repercussions that are already being considered as the "coup de grace" for the north.

Laura.Sanchez@sandiegored.com

Daniel.Aguilar@sandiegored.com