Some Cases of Personal Income and Wealth Tax.

Regarding the tax reform proposed by the government to the Congress of the Republic, individuals will observe, according to official information and some national newspapers, that income and wealth taxes will be modified according to the levels presented in their financial and asset statements.

Personal Income Tax

Currently, the income tax charged for monthly income of 5 million pesos is as follows: the first 4.5 million pesos are tax free, but the excess, or 0.5 million pesos, is taxed at 19%, or 95.000 pesos. This, in terms of twelve months, which is the time for calculating income tax returns, is as follows: of the annual income of 60 million pesos, 5.7 million pesos are taxable, which is the excess over 54.3 million pesos, the level at which they are exempt from tax with a 19% rate, income tax would be paid 1 million 83.000 pesos. 1/

Another example: When monthly income is 4 million pesos, which in twelve months is 48 million pesos, in this case, since it is below the 54.3 million exempted, no income tax is paid.

But if the monthly income is 8 million, or 96 million annually, he would pay zero for the first 54 million. For the excess of this over 85 million, or 31 million, he would pay (according to the table designed for these payments) a 19% tax of 6 million. For the excess of 96 million in the example over the 85 million, or 11 million, he would pay a tax of 3.1 million, according to the same table with a 28% rate, for a total of 9.1 million in income tax.

Wealth Tax for Individuals

Currently, a wealth of 2.000 million pesos pays no tax. A wealth of 4.000 million pesos pays zero tax on the first 3.585 million pesos, and for the excess, or 415 million pesos, he pays a 0.5% rate, or 2 million pesos in tax.

Another example. A 7.000 million pesos estate pays zero tax on the first 3.585 million pesos, and on the excess above that amount and up to 6.075 million pesos, according to the table designed for these payments, i.e., 2.490 million pesos, it pays a 0.5% tax of 12 million pesos. On the remaining excess (up to 7 million pesos), i.e., 925 million pesos, it pays a 1% tax of 9 million pesos, according to the same table, for a total of 21 million pesos.

With the proposed tax reform

In income tax, if monthly income is 5 million pesos, or 60 million pesos, the first 54.3 million pesos will pay no tax, and on excess, i.e., 5.7 million pesos, would pay a 19% tax of 1 million 83.000 pesos, which is the same as before without the reform.

But if monthly income is 8 million and annual income is 96 million, the tax is paid as follows: for the first 54.3 million, there would be zero tax; for the excess above that level over 85 million, or 31 million with a 19% rate, the taxpayer would pay 6 million; and for the excess above that level up to 96 million, or 11 million, the taxpayer would pay 3.2 million, for a total of 9.2 million. This is almost the same amount paid before the reform; the only difference is that with the last income bracket explained, with a higher rate of 29% than the 28% rate, the total tax increases from 9.1 million, as shown above, to 9.2 million.

Currently, starting with incomes of 17 million pesos per month, or 204 million annually, the tax rate increases from 33% to 35%. For example, an income of 240 million annually (20 million monthly) would pay zero tax before the reform. According to the tax table, the first 54.3 million would pay zero tax; the excess of that level over 84 million, or 30 million, would pay 6 million; the difference between 204 million and 84 million, or 119 million, would pay 33 million; and the difference between 240 million and 204 million, or 36 million, would pay 12 million. In total, the income tax pays 51 million pesos.

Now, with the proposed reform, those 240 million annual revenues would pay zero tax: for the first 54 million, they would pay zero tax; for the excess of that level over the 85 million, or 30 million with a 19% rate, they would pay 6 million; for the difference between that level and 204 million, or 119 million with a 29% rate, they would pay 35 million; and for the difference between that level and 240 million, or 36 million with a 35% rate, they would pay 13 million. In total, they would pay 54 million in income tax.

Thus, the difference before and after the reform is 3 million more in income tax for an annual income of 240 million.

In wealth tax.

The wealth tax would be collected from a level of 1.992 million pesos, which is lower than the pre reform level of 3.585 million pesos. This means that wealth of 4.000 million pesos before the reform would pay 2 million, a calculation presented previously. That same wealth of 4 million pesos paid after the reform would pay as follows: for the first 1.992 million pesos, zero tax; for the difference between that level and 3.485 million pesos according to the rate table, or 1.494 million pesos, it would pay a tax of 7.5 million pesos at a 0.5% rate; and for the difference between 3.485 million pesos and the 4.000 million pesos in the example, or 515 million, it would pay a tax of 5 million at a 1% rate, for a total tax of 12.5 million. This amount is higher than that paid before the reform.

In summary, the observations are as follows: In terms of income, monthly income below 4.5 million pesos (54 million pesos per year) does not pay income tax currently or after the proposed tax reform. Annual income of 60 million pesos (5 million pesos per month) pays 1 million 83.000 pesos in income tax, and the difference is the same before and after the reform. The difference in tax payments before and after the reform starts at 85 million pesos in annual income (7 million pesos per month), where the rate increases from 28% to 29%, and becomes more pronounced at 204 million pesos per year (17 million pesos per month), when the rate increases from 33% to 35%.

In terms of assets, before the reform, assets worth 2.000 million pesos did not pay tax, and after the reform, they will pay 4 million pesos. Assets worth 3.200 million pesos do not currently pay tax, and after the reform, they will pay 6 million pesos.

Likewise, the difference before and after the reform is accentuated for a net worth of 4.000 million pesos, which paid 2 million pesos in tax before the reform and would pay 12.5 million euros afterward.

For both incomes under 4.5 million pesos per month and for net worths under 3.585 million pesos annually, income and wealth taxes are currently zero. The proposed reform maintains the income tax exemption or zero tax for monthly incomes up to 4.5 million pesos, and for net worth, if tax begins at 1.992 million pesos, but it is zero for incomes below that level.

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1/ This refers to employment income or capital gains and does not include pensions, which are tax-exempt income.