Like many Mexican business people, Armando Santacruz, chief executive of chemicals company Grupo Pochteca, has faced numerous tax audits during the past decade.
If new legislation designed to punish people accused of tax dodging as harshly as drug traffickers had been law back then, “I reckon I’d have spent nine out of the last 10 years in jail”, he fumed.
The new initiatives, including mandatory pre-trial detention and the potential confiscation and sale of assets even before a conviction, are part of President Andrés Manuel López Obrador’s crusade to eradicate ingrained corruption in Latin America’s second-biggest economy.
They target the rampant illicit practice of using fake invoices, often registered to phantom companies, to dodge tax — something the president says costs the treasury $25bn a year in lost revenue, although the estimate is hard to verify.
Anyone accused of serious tax irregularities in Mexico could face prison without bail under provisions allied to the 2020 budget, currently before Congress, and an asset confiscation law that was passed in July.
Luis Niño de Rivera, head of Mexico’s Banking Association, said: “They are eliminating . . . the right to freedom, to property, to a hearing, a fair trial and the presumption of innocence and replacing it with mandatory pre-trial detention based only on suggestions and not real facts.”
He said the policy could lead to arbitrary asset seizures, the freezing of bank accounts based on suppositions rather than facts and business owners losing control of their companies even before being found guilty.
“This is a very negative signal for the national and foreign investors . . . whom we need so much to get the economy growing,” he added. “It’s not the right message.”
Gustavo de Hoyos, head of the Coparmex employers’ federation, said it would be “very easy to criminalise a company that made a mistake” and lock up executives in top security jails “as if they belonged to a [drug] cartel”. Business people have little faith that even if found not guilty they would be properly compensated for lost assets.
Alejandro Armenta, president of the Senate’s finance commission and a member of the ruling Morena party, said criminal charges would only be automatic for large-scale fraudsters. But tough legislation was needed to crack down on companies selling tax invoices to clients who used them to duck taxes, he argued.
“It’s not fiscal terrorism because from 2014 to 2019, more than 8,000 companies selling invoices were created and they issued 9m fake invoices, defrauding more than 350bn pesos [in tax],” he said. That was enough to pay for 220 hospitals, he said.
“This is criminal in a country where half the people live in poverty. It’s not [a measure] against business people.”
Mexico has the lowest level of tax collection in the OECD. But critics say that rather than raising that level, the measures will encourage people to stay in the informal sector — the more than half of the economy that pays no tax — simply to stay under the tax agency’s radar.
