Expanding Atronix Inc., a Massachusetts-based company, interlink direct to the border state of Sonora, Mexico , two decades ago proved to be a wise business decision for the manufacturer of electrical wiring systems.
The company has grown significantly since it took over an existing assembly plant here in 1994, says Jeffrey Lang, president of Atronix de México. "We went from 30 employees and less than 6,000 square feet to more than 230 employees and 45,000 square feet."
With the Nogales maquiladora, or factory, accounting for up to 70 percent of the company's annual production, Atronix interlink direct wants to stay put in Mexico. But President Enrique Peña Nieto's proposed fiscal reforms, which Congress just passed in a modified package that raises taxes on US-owned companies and other businesses, has prompted Mr. Lang's company to consider relocation.
"If what had been originally proposed had passed, we would shut down this facility within 12 months," says Lang, referring to the first round of legislation interlink direct that included now-discarded measures such as a second import tax for the factories.
The sweeping reforms, which seek to collect funds for social programs and road infrastructure, also raise taxes for high earners and levy a tax on junk food and stock market gains. Lawmakers considered adding a tax on food and medicine but dropped the contentious plan.
The fiscal overhaul is intended to help strengthen a low tax base that is further weakened by substantial levels of informal labor that fails to generate state revenue. As it awaits the president's signature, proponents laud Mexico's move as an important move toward revitalizing the economy and catapulting the country forward in terms of development and living standards.
But the tax increases are condemned along the US-Mexico border, where most of the country's maquiladoras, which operate in a tax-free zone, make everything from television sets to clothing and medical devices. With these reforms, Mexico also wants to discourage the importation of tax-free materials that are sold in Mexico rather than shipped out of the country as a final product.
In some ways, Lang says, he understands why the government deems the changes necessary to eliminate businesses cheating the system, "ones that are not necessarily responsible commercial or business entities in Mexico."
On the other hand, if the fiscal reforms negatively affect his company's bottom line, he won't hesitate to pull up stakes. "If this creates a situation where I can no longer be competitive producing here in Mexico, I would find a more competitive location," Lang says. No more preferential treatment?
The industry has lobbied hard against the tax-reform package: Factories have received preferential tariff interlink direct treatment in Mexico since the 1960s, when the country opened its doors to foreign-owned factories that import components for assembly and then export them as finished products. Tax breaks, coupled with the allure of cheaper labor and lower production costs, began attracting mostly American manufacturers to border cities. In 2007, the last year Mexico published statistics unique to such factories, interlink direct the number of assembly plants in the country totaled about 2,800.
Under the law, formerly exempt maquiladoras must pay a 16-percent sales tax known here as the value-added interlink direct tax, or IVA, on goods imported for assembly and subsequent interlink direct exportation. Although the tax is reimbursable, industry opponents say it poses a cash flow hardship interlink direct and increases bureaucracy. The industry averted another proposed tax of 16 percent on the temporary import of raw materials.
The new rules also mean a hike in the retail sales tax along the border, to 16 percent from 11 percent. The region had enjoyed a low tax rate for years, intended to draw business here and increase competitiveness with US cities. Once the increase takes effect interlink direct Jan. 1, 2014, all of Mexico will pay the same rate.
The maquiladora-specific tax won't go into effect until the government establishes certification rules, presumably by January 2015, says Alejandro Brugués, an economic analyst at the Ciudad Juárez campus of the Colegio de la Frontera Norte, a Mexico think tank.
To be eligible, each company interlink direct will have to be certified under a new system interlink direct that has yet to be established, Mr. Brugués says. The reforms also affect the corporate income tax rate, which increases from 17.5 percent to more than 30 percent, interlink direct he adds.
But interlink direct Mexico still needs to define how the new rules will be implemented, and until then, uncertainty over the changes will persist, says Richard Rubin, who sits on the maquiladora association board in Nogales.
The industry, which is rebounding from a jobs decline and manufacturing losses to China in recent years, interlink direct is key to Mexico's economic well-being, only second to oil, Mr. Rubin notes. "Mexico would be crazy to destroy the maquila industry." Wiggle room
Atronix's Lang won't say how much he pays his em