Mexican Levy

In the year ending June 1937, U. S. exports to Mexico totaled $94,000,000 as against $68,000,000 for the previous twelve months. This made the second biggest U. S. neighbor the sixth best U. S. customer. Last week this healthy trade was endangered by a new form of taxation devised by Mexico.

Unable to collect income taxes on the Mexican income of many U. S. firms which do business by direct mail or by traveling representatives (firms which maintain no offices in Mexico), the Mexican Government issued an order to its consuls all over the world: in addition to the previous 5% customs prepayment, let consuls collect a 3% income-tax prepayment, on the invoice value of every shipment granted a visa.

To Montgomery Ward, U. S. Steel, Du Pont, Sherwin-Williams and International General Electric, and other firms with Mexican customers, the new tax was a new headache. It fails to make any allowance for the fact that some transactions result in losses. It seriously affects contracts already made with Mexican buyers without expectation of the added cost. It will also result in double taxation for any concern which maintains an office in Mexico, since such offices already pay income taxes. According to the new decree, these offices will be entitled to a rebate, but U. S. exporters sniffed that the chance of getting money back from Mexico was like the chance of getting it back from the grave or the U. S. Treasury.

In Mexico City U. S. Ambassador Josephus Daniels, having complained to the Mexican Government, was informed that the tax could not be suspended or revoked except by the improbable consent of the Mexican Congress. But while exporters grumbled and protested, it was already apparent that Mexico like other governments which try to plug income tax loopholes was not going to be 100% successful. Foreign sellers promptly treated the tax like an import duty, added 3% to their invoice prices, thus passed the bulk of the new tax to the down-trodden Mexican who will eventually buy their products.

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