Extending value added tax (IVA) to property rentals, as proposed in President Enrique Peña Nieto’s fiscal reform package, would not increase government revenue substantially, real estate sector experts suggest.
Adding a 16 percent tax on all rental transactions would force even more landlords into the “informal” sector, says Roberto Barrios, president of the Association of Mexican Real Estate Professionals (AMPI). He and others estimate that between 50 and 70 percent of rental transactions already change hands without an official receipt being issued.
The majority of landlords in Mexico collect rents in cash and often do not deposit the money in a bank account. Applying IVA would give them even less incentive to declare their earnings, analysts say.In addition, the new tax could push the cost of rental property out of the range of many low-income families, analysts suggest.
Speaking at the Foro Inmobiliario 2013 in Mexico City this week, Barrios warned of falling into the same situation as 1973, when President Luis Echeverria decided to impose capital gains tax on all real estate transactions, a move that saw the market drop by 50 percent in a short time. The law was later rescinded.