Introduction to the Proposed Change
The Mexican government, through the Secretaría de Hacienda y Crédito Público (SHCP), has proposed increasing the retention rate of the Impuesto Sobre la Renta (ISR) on interests generated by investments. This change aims to provide the tax authority with additional monthly income, which will be channeled through financial institutions and alleviate public spending pressures.
The Proposed Adjustment
The proposed adjustment involves raising the ISR retention rate from 0.50% in 2025 to 0.90% in 2026. This increase nearly doubles the current rate, and it must be approved by the Mexican Congress, where Morena and its allies hold a majority.
Impact on Mexican Investors
If approved, financial institutions will retain nine pesos for every 1,000 obtained by savers through investment returns. Currently, they withhold five pesos for tax purposes.
- Provisional Nature: The proposed retention is provisional, allowing savers to recover the full or partial amount if they file their annual tax declaration.
- No Impact on Ordinary Savings: This change does not affect money held in regular checking accounts or informal savings, such as small cash reserves. It only targets specific investment instruments.
- Potential Disincentive for Formal Savings: Experts like Héctor Villarreal from the Tecnológico de Monterrey and Jorge Cano from Mexico Evalúa warn that this increase could discourage formal savings, especially as interest rates continue to decline.
- Possible Implications for Non-Declarants: For those who do not file tax declarations, this change could effectively impose an additional tax since all withheld amounts go to the government. Those who do file may receive a partial refund.
Is the Retention Rate Too High?
The appropriateness of the new rate depends on the interest rates savers can secure. With low-interest rates and inflation hovering around 3.7% to 3.8%, the real returns on many investments are already modest. The proposed retention could significantly impact these already-slim returns.
Key Questions and Answers
- What is the nature of this proposed change? The Mexican government aims to increase the ISR retention rate on investment interests from 0.50% in 2025 to 0.90% in 2026.
- Who will be affected by this change? This adjustment targets those who invest in instruments like Cetes, bonos, pagarés, or mutual funds. It does not affect regular checking accounts or informal savings.
- What are the potential consequences of this change? Critics argue that it could discourage formal savings and effectively impose an additional tax on non-declarants, while providing a small income boost to the government.
- Is the proposed retention rate justified? The answer depends on prevailing interest rates. With low-interest rates and inflation, the real returns on many investments are already slim, and additional retention could further erode these meager gains.
