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Mexico finance minister says tax reform will be "large"

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(Globalpost/GlobalPost)

By Krista Hughes

WASHINGTON (Reuters) - Mexico is making good progress towards a "large" reform of its inefficient taxation system, with details of the overhaul expected this fall, Finance Minister Luis Videgaray said on Saturday.

Mexico's budget relies heavily on funding from such sources as oil-industry revenue because it takes in so little in taxes, a phenomenon credit rating agencies have cited as a barrier to a higher rating. Many investors see a tax system restructuring as the most important reform element for Latin America's second largest economy.

"We have some very good progress on what we are planning to do on fiscal reform .. (but) we are not talking about it yet," he said in an interview with Reuters on the sidelines of meetings of the International Monetary Fund and World Bank.

Asked if he could reassure investors that the reform would be sweeping, he said: "It will be large."

Experts have said Mexico needs to increase its tax take, currently the lowest in the Organisation for Economic Co-operation and Development (OECD) as a proportion of gross domestic product, by 6 to 8 percentage points of GDP.

The new government, which took power in December, has promised to review both direct and indirect taxes, combat a large informal economy, encourage states to levy more taxes and tackle the current system of exemptions and preferential treatment to boost the efficiency of tax collection.

Videgaray also expressed disappointment that Group of 20 countries did not commit to exchange information on profits by multinational corporations, which would help combat tax avoidance.

Instead of insisting members sign up to an international deal by the next G20 meeting in September, the bloc of advanced and developing nations only said they "encourage" joining.

The G20 also backed down from calls to make advanced economies commit to hard targets on getting public finances in order after countries such as the United States argued against setting a specific goal for debt and deficits.

Videgaray, who met with U.S. Treasury Secretary Jack Lew during his visit to Washington, agreed this was reasonable in the face of worries about a slowing of U.S. economic growth.

"We are quite concerned about a low-growth scenario in the U.S., our economy is significantly more linked to the U.S. than to any other economy, so it's in our best interests for the U.S. to continue growing," he said.

"While Mexico is in a much better position itself on the fiscal front, you need to be careful not to hamper the growth prospects of advanced economies, particularly the United States."

The G20 also promised to be mindful of the impact of policy stimulus on developing nations, particularly stimulus by central banks to pump extra liquidity into markets - some of which finds its way into emerging markets.

Optimism about economic reforms has helped boost foreign capital flows into Mexico, pushing the peso to 20-month highs, although it eased to 12.2590 per dollar on Friday.

Mexico's currency commission suspended auctions of dollars on days of sharp peso falls earlier in the month, and analysts have said it could take further action if policymakers are concerned the currency's strength could hurt growth.

Videgaray said the commission had not considered reinstating auctions of "put" options, a measure used in the past to brake currency strength, although he did not rule out such a move.

"We're open to all policy actions depending on the circumstances, but it's not something that was considered given the macroeconomic conditions at this meeting," Videgaray said.

(Reporting by Krista Hughes; Editing by Neil Stempleman)

http://www.globalpost.com/dispatch/news/thomson-reuters/130420/mexico-finance-minister-says-tax-reform-will-be-large