The Current Tax Landscape for Alcoholic Beverages in Mexico
The current tax system for alcoholic beverages in Mexico, primarily the Special Excise Tax on Production and Services (IEPS), has significantly increased the price of artisanal mezcal by 200-300% compared to its production cost. This situation puts immense pressure on producers, particularly small-scale ones.
The Breakdown of Taxes Affecting Mezcal Production
Ramón Isaac Pérez Castro, the commercial director of Almas Benditas, explained that the IEPS for high-alcohol beverages like mezcal is 53%. When combined with the IVA, ISR, payroll taxes, and other fiscal costs, it considerably raises the final product price. He stated:
- IEPS: 53%
- IVA (Value Added Tax)
- ISR (Income Tax)
- Payroll taxes
These taxes, along with additional IVA at the distribution and retail levels, contribute to a 200-300% increase in the final product cost.
The Unique Nature of Artisanal Mezcal Production
Marisol Rumayor, coordinator general of Mundo Mezcal, and Pérez Castro agreed that high taxes are one of the most challenging aspects for the mezcal industry, especially affecting small producers. Artisanal mezcal, sotol, bacanora, or raicilla cannot be mass-produced or significantly reduced in cost due to their manual labor-dependent quality.
Traditional methods like the tahona, grinding, and clay oven are used in mezcal production, requiring human labor and unable to be replaced by machines without losing the product’s essence.
Proposed Reform of the Mezcal IEPS
Due to the high mezcal prices, consumption has decreased as many consumers opt for more affordable alternatives like beer or industrially produced spirits. To address this, producers, Mundo Mezcal, and business organizations are part of the “Modernize IEPS” initiative to review this tax on mezcal.
Rumayor emphasized that the goal is not to eliminate the tax but to redesign it, as it currently depends mainly on alcohol content rather than the artisanal production process.
She added that mezcal, by regulation, must have a minimum alcohol content, which automatically applies the highest tax rate. A complete overhaul of this IEPS approach is necessary, as it only considers alcohol percentage and not the artisanal production process.
Preserving Ancestral Mezcal Amidst Challenges
Apart from high taxes, producers must also tackle the cultural challenge of preserving mezcal as an ancestral drink without being absorbed by industrialization. Rumayor noted the growing conscious and demanding consumption of mezcal, with 16 denominations of origin in Oaxaca, Guerrero, Guanajuato, Michoacán, Puebla, Estado de México, Morelos, San Luis Potosí, Tamaulipas, Zacatecas, Aguascalientes, and Durango.
Various agave types are used for mezcal production, including Espadín, Tobalá, Cupreata, and Madrecuixe.
Mezcal Industry Overview
According to the Consejo Mexicano Regulador de la Calidad del Mezcal (COMERCAM), annual mezcal production ranges from 12 to 13 million liters, with Oaxaca contributing over 90%. Mezcal accounts for 18.6% of Mexico’s alcoholic beverage production.
In 2023, the sector’s revenue reached $4.161 billion. Globally, the mezcal market is valued over $350 million, with 80% of production exported, primarily to the United States, followed by Germany, Spain, France, the United Kingdom, Canada, Colombia, Italy, Australia, and Japan.
Growth prospects are positive, with projections estimating a $2,357.7 million market value for mezcal by 2034, growing at an annual rate of 14%, driven by premium, artisanal, and culturally-identified segments.
Key Questions and Answers
- What is the main issue faced by mezcal producers? High taxes, particularly the IEPS, have increased mezcal prices by 200-300%, affecting small-scale producers.
- Why can’t mezcal production be industrialized? Artisanal mezcal relies on manual labor and traditional methods, which cannot be replaced by machines without losing its essence.
- What is the goal of the “Modernize IEPS” initiative? To redesign the mezcal tax, considering the artisanal production process rather than just alcohol content.
- How has the mezcal industry grown recently? The global mezcal market is valued over $350 million, with a projected value of $2,357.7 million by 2034, growing at an annual rate of 14%.
