TAX EXEMPTION ON RETIRED INCOME FOR MEXICAN ARMED FORCES: AN ONGOING CONTROVERSY CONTROVERSIA EN LA EXENCION DE IMPUESTO SOBRE PENSIONES DE PERSONAL DE LAS FUERZAS ARMADAS MEXICANAS

Laidon Jonathan Saiza Vazquez and Jose de Jesus Moreno Neri

Revista Global de Negocios, 2018, vol. 6, issue 4, 11-24

Abstract: A controversial issue in the Mexican fiscal sphere is the non-proportionality and equity of the contribution to public spending. This non-proportionality goes against Article 31, Section IV, of the Political Constitution of the United Mexican States. The Constitution establishes that all Mexicans have an obligation to contribute to public spending in a proportional and equitable manner as provided by the respective law. This provision results in a reduction of tax collection to meet the budget of public expenditure according to the Law on Income of the Federation. Every pensioned Mexican worker contributes with their respective withholding of tax on their income. However, personnel of the Mexican Armed Forces are exempt from payment of pension income taxes. This exemption is based on Article 32 of the Law on the Social Security Institute for the Mexican Armed Forces. It is a special item, since even pensioners are subject to defense protection in a time of an attack against the country. They serve the Nation. However, there are other sectors that also work for the Nation and are indispensable for the people. However, only military personnel are exempt from the tax. We ask: Why is only the Armed Forces category exempt from the payment of taxes, given that the contribution to public expense is equitable? How do they apply these rules in other countries? How much income would the Federation collect if the retired military paid their respective tax share? The existing inequality in the treatment of civil and military pension taxes in Mexico is examined in this paper. We compare the Mexican system to other Latin American countries. We also identify the monetary amount that the Mexican tax system could collect to cover public expenses if the military were taxed on their pensions

Keywords: Income Tax; Pension; Equity (search for similar items in EconPapers)
JEL-codes: C80 F60 F66 H20 H24 M40 M41 M48 M50 (search for similar items in EconPapers)
Date: 2018
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