Aventuras con facturas: Notes on some of Mexico's self‐inflicted fiscal wounds

Cholula, Puebla, Mexico, July 2023 1. This is a story of how the smallest actions and interactions in our daily lives are enmeshed in the largest systems that channel the social world's energies—systems that have their logic but that, at various junctures, just might be self-defeating. Ask for the bill at the end of a restaurant meal, call an Uber, grumble with a friend about the bean counters who are complicating your life unnecessarily, try to decide if you should be having a beer with your tacos—as tiny and mundane as these situations are, they participate of our world's broadest social, political, and economic currents. Say that, as part of your work, you are spending money in Mexico that a local institution is supposed to reimburse. You may be Mexican, or you may be a foreigner like I am. It makes no difference. The institution may be an employer or an organization that will pay travel expenses in exchange for an otherwise unpaid lecture or consultation—or something. It is going to get complicated fast, and you are going to get a tutorial in the intricacies of Mexico's public finances. This situation may seem banal and boring, but it is not; it provides a revealing, ground-level window into some of the difficulties the country faces in its economic, social, and political development. Mexico is hardly alone in these difficulties, but every country has its own way of struggling. As Leo Tolstoy wrote about families in Anna Karenina, “… each unhappy family is unhappy in its own way.”1 When it comes to taxes and such, it is hard to find a truly happy country. Mexico is plagued with the worst fiscal capacity among the 38 member countries of the Organisation for Economic Co-operation and Development (OECD), at 16.7% of gross domestic product (GDP) in 2021—a marked improvement from 2005, when it was just over 11%. The only other member country that is at less than 20% is Colombia, at 19.5%.2 Broadly speaking, fiscal capacity refers to a government's ability to generate revenues, and the primary means to do so is the levying of taxes of various kinds. Nobody likes taxes, but without them, a government in a capitalist economy will be unable to function.3 For a government to have a chance to enact programs that will play some dynamic part in improving the lives of people, it needs a healthy tax base—strong fiscal capacity. It may squander that chance through waste, inefficiency, corruption, or in other ways, and we will see that this concern plays a part in Mexico's quandaries, but without income, a government cannot even be corrupt. One of the important flip sides of fiscal capacity for a country like Mexico is the magnitude of its “informal” or “underground” economy. The informal economy is that slice of economic activity that escapes official supervision, regulation…and taxes. The bigger the informal economy, the more potential the tax revenue that never materializes. No matter where we are from, we are all familiar with this reality—no country escapes the informal economy completely, but its relative and absolute size vary greatly. One dimension of the informal economy is outright illegal. Think of drug trafficking from beginning to end of the production–consumption chain and it is easy to see why its participants want to hide their activity from government. Another dimension involves the kind of economic activity that, while otherwise legal, is hidden from government to avoid paying taxes. It reduces the cost of the transaction to the buyer (as is obvious) and to the seller, who has a better chance of making the sale and avoids the bureaucratic hassle and economic cost of administering the tax and passing it on to the relevant public authority.4 The gig economy adds its own wrinkle to this picture as many Uber drivers and Airbnb hosts (to pick just these two sector-leading companies) run unregistered operations. We will see how this scenario plays into the situation I am describing. Both dimensions of the informal economy account for a large chunk of economic activity in general in Mexico. Its inherently criminal side will never contribute to the state's fiscal capacity…unless it stops being illegal in whole or in part. As for its legal-but-tax-evading dimension, governments (and, it could easily be argued, society in general) have a strong incentive to reduce its size—to bring as much of that activity as possible into the tax-paying category, thereby strengthening fiscal capacity. It is the task of fiscal authorities to make it happen. In Mexico, the relevant public authority would be the Secretaría de Hacienda y Crédito Público —Hacienda for short—and its tax collecting arm, the Servicio de Administración Tributaria (SAT). Hacienda and SAT can be their own worst enemy. 2. Say you eat a meal in a restaurant. When you ask for the bill, you will get a ticket, as it is often called in Mexico—the itemized bill for what you ate and drank. If you pay with a debit or credit card, you will be offered a receipt for the card transaction. In Canada, where I am from, if this meal can count as a professional expense, I can submit these documents (for instance, to my university) as proof of expense, and I will be reimbursed to the extent that I spent within the permitted parameters. In both Canada and Mexico, the ticket includes the restaurant's fiscal identification number issued by the government. In Canada, the ticket's information on the transaction, including the amount of tax collected from me, goes automatically into the restaurant's computer database through specialized software mandated by government. This “point-of-sale” (POS) database must be reported periodically to the relevant fiscal authority,5 along with payment of corresponding sales tax amounts. We will see that in Mexico, the government has no direct access to the POS information, which is hugely problematic. At the other end of the Canadian chain of transactions in my example, the university keeps the documentation that it can present to the Canada Revenue Agency (CRA), if asked, in exchange for its reimbursement to me. The crucial feature of this situation is that the tax reporting in Canada is systematic and automatic—as soon as each transaction is entered into the restaurant's (or other business') payment system, it automatically goes into a database that must be reported to the CRA. With the report goes a check, or these days, a bank transfer. There are businesses with a small volume of transactions that do not justify the purchase of the specialized tax-reporting computer hardware and software, and they are allowed to record and report the transactions manually. They are also subject to tax audits at short notice. There are ways to avoid this system through cash payment and the absence of any paper or electronic trail—the informal economy—, and restaurants are notoriously creative in finding ways to hide transactions. In this area as in everything else about life in society, it is not a matter of yes or no, all or nothing, but rather of more or less. Still, in most economic sectors it is a burdensome, risky, and often self-defeating gambit, not worth the seller's effort. From the buyer's perspective, it can also be risky to go the informal cash route as the purchase will not be covered by warranty, the government's consumer protection system, or various kinds of insurance. Another important aspect of the Canadian story is that the restaurant and my university do not have any kind of relationship; I am literally the middleman, having an economic relationship with both sides while they remain an economic stranger to each other. Meanwhile, we each have our own relationship with the CRA. In other words, the interactions between the various players are kept to a minimum, reducing the opportunities for mistakes, delays, fraud, and so on. This point is important. If you are in Mexico and you expect your host university to reimburse a meal in exchange for the restaurant's itemized bill, card receipt, or both, you are most likely out of luck. I say in life are and is only an on the part of who not want the hassle that would or who may not how to get to and not want to go to the of finding We will to this point For as a SAT will a from the restaurant. The to will the fiscal restaurants have a member to payment and the I this system when I was a of a university for a It was my when for the bill at the end of my meal, to ask for the and to the restaurant with the fiscal It to be by and like a card with the relevant information, which but the was in a of the system, electronic of a are and are often on This important a in the system, the as to which SAT the of in a of to the the make from their their own in the of the system that may or may not with of SAT or the The is a that includes the and fiscal information of this both the restaurant and the It also in the of that has meal would be as y and The fiscal information to be in the is and subject to I was over the of that Hacienda just the for more the university and the restaurants are not on the what information is In any is no reimbursement without a no tax report from the restaurant to no tax money is going to The situation is a more complicated than I just and it a while to get my the on in my for at the end of my I was that restaurants do not like to it a report to to be by payment of the sales tax collected from their No no payment of restaurant's I that my the fiscal number and a with the amount I With this important information on all it to seem that SAT was for only the tiny number of restaurant for which the a It outright that payment of the sales tax by businesses to SAT would be by The more I about the less any of it any The to the out to be rather and and it a with the of a friend who has how small businesses the other but I to my must report their and of sales tax to SAT at the end of each It is by means of an issued in the of the public in of the sales tax to SAT is on the reported in the When like an its amount is to be from the restaurant's the two are and to From perspective, the with how the system is that the are on to which SAT has no When its daily transactions to its a can make a of its and SAT with information and tax from the of the The must be in of an but is no way for SAT to that some (or have The the tax from the Still, it must be to report an to a tax that is and over to avoid the of SAT be an of a small it would likely the of an the and like your The may make a of a informal thereby a happy of the small of that have many social and economic transactions in Mexico for the system, businesses sales tax to but they may only a of the they a situation possible by the absence of a to tax reporting and some of their many businesses hide not only the sales taxes they collected but also some of their This must be for tax reporting some of their At the end of the fiscal must some between and do an can play with its own or can be between businesses may a to who not to a or make life more for who of From to the these through the economy, to a of its From the of the the of is in They have the potential of if their and seem out of with amounts. At a more daily each that a money through literally has to each from a have to be to and tax have to the and so on. For the businesses as many and these easily In its SAT this and the smallest businesses a in which they must pay a of of their It is for these and it is for which has not all that in to these tiny go to the of in that, as likes paying taxes, the system just a incentive for the restaurant (or other to avoid an the the incentive is to from the possible of SAT which businesses may or may not be and to so the to the university of an just as it the amount and of the to be out by the university It also the on and the who my expenses and reimbursement to every possible of reimbursement will be and I will be the my who on by their end paying out of their own without me. As as the university is this is from my example, the on the that businesses are to the they at the end of the SAT of some part of its potential the other in most restaurant in Mexico and for many other economic no is and is when a is as we soon it can easily which is where the you may Say you are for a to your that will be to a It out to be you have Airbnb from your of as hosts are not with They do not pay tax on their income, so they will not be to a the will be happy to for its of the the of your cost will be to that, and go to a which will as a matter of and you pay taxes. you to travel from the to the the is will be if you to you an receipt, but they will not Uber on the other will you a you have a tax number with of I do I that might be a way to with this by the fiscal information into my Uber but I would have to do so in at in Canada, as I cannot run the identification from We no to this so I Uber and the to my and it is how it will It is it was not if from the as as they might the reimbursement for an have an gambit, to the life of you have to with I am of their social systems for not the the of many social systems being to avoid a In the ticket I at the end of the meal a that for should be when the that In many other was kind of like in Canada, do not want or are not allowed to reimburse for a can be or but it can also be or It was to on of the that no reimbursement would be should a the might be a or a or an de the that it could be a beer is to the from being the might have going with or not; who When of this university restaurant that their system would only to y and in the of the electronic When they on the would present for a meal, y was There was they could do about other restaurant no they could or some that would not This story among other that that can to hide the purchase of even as corresponding the that This is the of the the in at two of will be this reimbursement will be possible through could in a of The most was the way in which in or not the various players in this in that can be a it could be that a but to in a my a card with the information, including the where the should be I many of these over many of in reimbursed by restaurant to that a crucial of information was from the card, so they could not a at the the the and the over This some but that was this my the for a and by an electronic of the card, I would soon it was the which I by out the Another was for the restaurant to a and a to out with all the This paper would be over to their who would the I have and I the when I have to a with my information less as I go I am I am not the only so In any I a of these with In I for a that would only or some that not be No I was was issued and I the paper in my and without at it was my in The my that the y so I to the restaurant with the and to I was it could not be This was by some between and at I a In the the restaurant also to the with electronic that could have which would have Another situation that I a with no of I the a of my information on and to the to my university and to a on which is never As with all other I the end of the to out to the restaurant to get this I was not but by this point I to about the whole I would go to the restaurant and see where it In the my the restaurant and with part of a small where a the my to with the who was not just I to the restaurant and a small of the When I for they all at each other and It that no I for the that might was to a to for a I my and I on the no which We to with over It about to access the the information, and the of y When I it out to that a was of no to me, and would could not find a on electronic but it to the on the SAT The of on the would not go and As I the to point out to the who the and was at some from and kept for about the I would have an end to but I was in I to see this if but I was I was not going to eat if was no In the I to on the of for and with a in my this of was the of the to on my I could go as every meal I over called for a some on the I that you get the businesses are by to a they are often not asked, and when asked, The about this story is that should not and not marked as in should be all the proof of as electronic the transaction in the which can be over to the cash transactions will this system, of but are not issued for One may to the that I am on account of my a to the and of a country that is not of the it should be a to to Mexico on a Canadian would say that, Mexico cannot be to a of capitalist I am to this concern as I am as a of the of what is called (or some of In this kind of I it is the to do to at the system in this it to that that Mexico cannot be not only the but also from a of Mexico would be to systems for with tax as in Mexico is not a country and it faces difficulties of what to be called its system and economy in the at large as a country of participants in and and the large software systems that are run in Canada and of of and of all and With the electronic system, even small businesses to through of an and at the end of each to the that will the small businesses the of to the of or and so on. Meanwhile, some other of of are to have access to any and of small informal businesses only with Hacienda to its of economic activity more it will all these it not to do is more transactions into the Broadly speaking, Mexico and Canada in the of a capitalist economy, with the kinds of government the kinds of and the ways of public the and Mexico has to its fiscal capacity and has some The government to its through of as much of the economic activity as The system is not it is It transactions on of and interactions that for instance, between the university and the each opportunities for mistakes, fraud, and other It the payment of taxes and to try to get It should be and with in which do the that do only would so make my the lives of my at and the lives of restaurant and and most but it would also the of the tax of into every There are why the system that I I could be in of bureaucratic going to and I am it is in and a of the whole would bring If only of this the would not be easy to In the task of it would be but it not the country would be unable to do that Mexico's fiscal capacity has over the I should make for the that and the of the system in to that The system could be as and the situation at the a that the state's and fiscal capacity while to to a of their tax SAT and of of economic and and of transactions every but it also of transactions of the size of the informal economy, which the system I am on my Canadian is a of the the government while as a and a that from its I these by in the of the social that If you have no for you have my to It is not by that I am my with to the and the the state's ability and to into including their every economic transaction, is a feature of how capitalist society at this of as they never every transaction or activity they might is a matter of which is way of that is a matter of We can this dynamic as a between and the of both the capitalist economy and the of of and this whole In this perspective, the are possible and as a subject only to the extent that we as are and in to as and political we are, at and the we are as and whole This is the in which the life of the and the life of the the life of the we of as our political and within and are possible by this of The goes for as economic in our as and and and so on. economic are and within that as economic and are by and the subject to political also channel to the government to out its may be are and are or the is at the of other public or of public are to all on making their way to government all of in every country on the in more of where and are flip sides of the we for as or or or or and how our lives are by our and by is the of which is to say that through the government or of and including through the making of kinds of If we of as for instance, or as tax it will not be to how we as economic and political as we and our way through this we not only we also as we see as we may on our government's of its tax tax may be as tax and so on. this of government through the and in our lives of and including as taxes and the tax issued by fiscal authorities to and the and specialized software that record transactions and relevant the electronic that and to the and so on. In this Mexico's is a The of its is the it to the kind of and money that through for expenses that may be or than the amount on the other it is to the of expenses reported to SAT (for instance, are not The is to the of the of in the life of economic to into every and of economic and to bring to of as of the Hacienda of it in both dimensions of the informal economy. the extent that the and informal economy and in an it to that the system would to the It was as a of and is with to do just The is that in a whole of the system is do all they can to avoid to have to no matter the and a number of transactions just go In ways, from this system, as do as as a matter of that are not an part of economic transactions but rather an and fiscal that is as often as than the official economy and the the by to avoid and to of as economic, social, and political the to while at a they do not As I was of my in Mexico this meal that was not subject to for the I was when the asked, you like a with I a to this and but is a in the of and at the of on political and and has on the of Canada, the and Mexico.

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