Traverse City Record-Eagle

Business

January 1, 2014

Mexican tax hike seen as boon on border

Mexican sales tax rises today from 11% to 16%

CHULA VISTA, Calif. (AP) — Mexican license plates are common in parking lots of shopping malls in U.S. border cities. They will be even more familiar after Mexico raises its federal sales tax in border regions to match the rest of the country, say merchants and shoppers.

The increase to 16 percent from 11 percent, which takes effect today, has sparked large protests on the Mexican side of the border. Facebook pages with secessionist tones have generated about 200,000 “likes.” Thousands have signed petitions to challenge the tax hike in court.

The Mexican government says the two-tiered tax structure, which was introduced decades ago to make border cities competitive, is no longer justified. Others say the increase may backfire by driving more shoppers north of the border, harming the economy and raising less tax revenue than anticipated.

“We don’t compete against the rest of Mexico, we compete against the American economy,” said Juan Manuel Hernandez, president of the Tijuana Business Coordinating Council, an umbrella group of business chambers.

U.S. border regions like California’s Imperial Valley — which has three Wal-Mart Supercenters and only 175,000 residents — have long depended on Mexican shoppers who buy everything from gasoline to groceries. Brand-name clothing and electronics are perennial draws for Mexicans seeking products that are more expensive or hard to find south of the border.

Mexican shoppers spend more than $4.5 billion a year in Texas border cities, according to the Federal Reserve Bank of Dallas. Fed economists estimated in March that Mexican border crossers account for 58 percent of retail sales in Laredo and 42 percent in McAllen.

Published research is more dated for other border states, but the impact is undeniable. University of Arizona researchers concluded that Mexican shoppers accounted for 48.6 percent of taxable sales in Santa Cruz County, Ariz., which includes Nogales, from July 2007 through June 2008.

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