Income Tax and VAT in Mexico compared to other OECD countries.

"The corporate income tax rate in Mexico was higher than that of individuals."

Do you feel like you pay too much in taxes? A recent analysis by the General Directorate of Finance of the Belisario Domínguez Institute (IBD) revealed that Mexico imposes an Income Tax (ISR) in relation to the average rates of other nations in the Organization for Economic Cooperation and Development (OECD).

In the “comparative analysis of Income Tax (ISR) and Value Added Tax (VAT) rates in OECD Countries”, prepared by IBD, it was highlighted that for 2022, Mexico ranked 5th among OECD countries with a high corporate income tax rate.

The corporate income tax rate in Mexico was 30.0%, while the average among OECD countries was 23.6%. Meanwhile, the maximum rate for individuals was 35%, compared to the OECD average of 42.5%.

The IBD report revealed that in 2022, the OECD countries with the highest corporate income tax rates were Colombia at 35%, Portugal at 31.5%, and Australia at 30%, the same as Mexico. On the other hand, the countries with the lowest rates were Hungary at 9%, Ireland at 12.5%, and Lithuania at 15%.

What about the income tax on individuals?

According to the aforementioned analysis, the rate applied in Mexico was 35%, placing it 30th in the OECD ranking. Countries like Japan (55.9%), Denmark (55.9%), and France (55.4%) imposed the highest rates for this category, with the average in this area being 42.5%.

In the year of analysis, the IBD found that Mexico applied 11 different income tax rate levels starting from an income level of $7,735 pesos per year. As a result, the rates ranged from 1.9% to 35%, with the maximum level applied to income exceeding 3,894,140 pesos per year.

Regarding the Value Added Tax (VAT) rate, the IBD detailed in a statement dated August 4, 2024, that for 2024, Mexico applies a rate of 16%, while Canada, the United Kingdom, and Turkey applied a rate of 20%. However, the average among OECD countries was 14.5%.

Given the above, the comparative analysis of income tax and VAT concluded that Mexico faces the challenge of strengthening its public revenues without necessarily increasing tax rates. To achieve this, the following is recommended:

- Reducing tax evasion and avoidance

- Improving the efficiency of tax collection

- Exploring the possibility of deepening the strategy of creating competitive and profitable state-owned enterprises