MEXICO: STRONG FISCAL POLICY

Mexico 2020 | FINANCE | VIP INTERVIEW

TBY talks to Eduardo E. García Hidalgo, President of Grupo Asesores en Negocios, on the change of government, tax legislation changes, and boosting investor confidence in Mexico.

How has the change of administration impacted your operations?

2019 was a good year for our Group, but hard for Mexico, one of the major causes being the amendments being applied to Mexican legislation. For us, this has led to an increase in clients needing our help, especially when it comes to compliance with the new legal requirements. Unfortunately, this situation has only slowed down economic growth. Aside from a few sectors such as construction and FMCG, the economy is not having an easy time for the moment.

What kind of new legal requirements for taxes should companies be aware of?

Most companies have to follow a new legal process under the new law. Mexican tax authorities believe that companies that use the services of tax advisors do not follow the full processes properly. For example, there are new legal requirements, for individuals as for companies, that compel you to verify the processes of their tax advisors, which is a huge thing to require of companies. The OECD also has regulations that companies must comply with. An example of the above is deductions, because with these changes Tax Authorities now have the right to check and examine if they are based on authentic reasons or done with the sole purpose of making profit for the pockets of the shareholders. Obviously, when you are talking about the private sector, most owners develop business models to increase their earnings, but the model in the public sector involves increasing tax collection and forcing companies to check their accounting and financial reports more carefully. But instead of seeing this as an disadvantage, we prefer to see it as a business opportunity, exploring ways to maximize the wealth of our clients and at the same time comply with tax rules adequately.

Is the outsourcing segment of your business set to shrink with these new changes?

Outsourcing firms are currently going through a challenging phase. First of all, Mexico signed the US-Mexico-Canada Agreement (USMC), which notes that salaries in Mexico are inferior to those in Canada and the US. If you take a look at salaries under the framework of social security, you will realize that most companies are not paying people properly. Another aspect is social services in Mexico, which are not ready for the challenge of facing the demands of the Mexican citizens, which is why most employees prefer private insurance and pensions. It is compulsory for companies to pay social security contributions, but the issue is that the social healthcare system fails to adequately address the prevailing health deficiencies in the country and most employers find ways to not pay full social security contributions. Thus far the government has amended laws to fulfill this gap in the system. If a company gets caught while cheating with social security contributions, they would face huge penalties or even worst, end up in with a prison punishment.

How are these stricter rules affecting investor confidence in Mexico?

Domestic and foreign investors are not sure about investing in Mexico. Many of them are heading to Europe, and specifically Spain. A huge proportion of the capital investment in Spain is coming from Mexicans. Tax regulation in Mexico is getting so complicated and uncertain that investing in the country could be described as a high stakes gamble.

What are the main advantages of doing business in Mexico?

If you have the know-how about the process, Mexico can be a great place to do business. People who have high acquisitive power have a high propensity to invest in construction. However, real estate sector, nowadays is declining and prices are decreasing. Inflation and unemployment are increasing. I believe that in order to lift people out of poverty we need to invest more in education and create more jobs. When there is too much risk, people are afraid of making investments. Mexico is a great model for the rest of Latin America. If Mexico can change with these reforms, the rest of the countries in this region can change, too. We have the opportunity to do things differently working together with all the stakeholders. We have a great chance to change the country's model and build a better future.

What are your plans for internationalization?

We are an active member of LEA, the second-largest international association and which only eight firms of Mexico are part. Also We have plans to open a subsidiary in Spain with the purpose to provide European investors, who are interested investing in Mexico, all the facilities to achieve their financial goals. Regarding South America, actually, we are in advanced negotiations with a Chilean group for closing an investment deal in our country. We have an advantage, the vast majority of accountants and tax advisors, in Mexico City, at Grupo Asesores en Negocios, we have a global vision and a broader perspective. We see things that nobody else can, our colleagues understand world business.