Published On: Wed, Feb 27th, 2019

Mexican IRS… The number one winner with legalization of marijuana

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Its commercialization is a rich source of public income, according to international experience; The challenge is that the tax burden does not encourage the black market.

Amongst the winners for the possible legalization of the use of marijuana in Mexico, there will be an indisputable one, the Mexican IRS. The initiative to regulate the use of cannabis for recreational, commercial and medicinal purposes in the country is still awaiting judgment, but it seems an imminent fact.

According to international experience, the business of its recreational, commercial and medicinal use constitutes a source of important revenue for the government. After legalized, it will generate a considerable tax revenue for the federation. As an example, in the United States entities that have established a legal marijuana market, taxes on end users exceed the general rates for other products, according to the US organization Tax Foundation. The state of Colorado raised 244 million dollars of taxes from January to November 2018, and is its sixth source of tax revenue, according to information from the entity.

How much will the government raise in Mexico?
The challenge will be to apply the appropriate tax rate, not too high, that way people will have the motivation to buy it from retail stores and not from the black market.

In Mexico, cannabis will be legislated at a federal level, by modifying the General Health Law, which will make it subject to federal taxes, unlike what happens in the United States, where each state has the power to apply their own taxes.

For now, everything indicates that the sale of marijuana will be subject to the Special Tax on Production and Services (IEPS), as is the case with products such as tobacco and alcoholic beverages. In the case of tobacco, this tax is 160% and in the case of alcoholic beverages, it goes from 26 to 53%. The reason is simple: Such high taxes were created in order to inhibit and lower consumption.

The initiative presented by leftist president Lopez Obrador´s party, MORENA, contemplates the creation of a decentralized institute that will issue licenses and authorizations, whose payments will also be tax revenues. MORENA´s bill proposes that companies that will be engaged in the production, marketing, processing and/or sale of marijuana would have to pay income tax on the profit obtained, and users, the value added tax (IVA).

However, an issue arises, and that is what will happen with the “zero IVA” rate currently applied to the consumption of vegetables and plants, medicines and food. Due to its versatility marijuana falls on most of the aforementioned.  

The San Miguel Times
Newsroom



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