Mexico Courts Investors With IPO Tax Cut

Stocks in Mexico rose on the news that the country’s government would cut the tax rate for equity IPOs, and allow private pension funds the chance to invest in more instruments.

Financial Times reported that Mexico’s IPC stock index was trading at 1.6 percent higher on Tuesday (Jan. 8), at an almost two-month high of about 43,500 points. Also, the peso tightened 0.4 percent to 19.28 per dollar, which is the highest since the end of October.

The moves by the government are an attempt to boost Mexico’s slow yearly growth rate of about 2 percent, which has been the case for the last three decades. They also want to grow the reach of the country’s banking services.

The tax rate for new equity will get slashed to 10 percent from 30 percent. The hope is that it will give a boost to Mexican companies attached to the country’s two stock markets.

Mexico has 141 listed companies, a number that is 50 percent less than Chile and much less than other countries, according to Deputy Finance Minister Arturo Herrera.

Herrera said that many of Mexico’s biggest employers – about 40 percent of mid-sized companies, fewer than 30 percent of small companies and even 10 percent of micro businesses – didn’t have access to financing.

Luis Alberto Castañeda, head of the tax legislation department at the finance ministry, said he thinks the moves will have a “big impact on the market” and should not affect tax revenues.

Santiago Urquiza, president of Mexico’s new BIVA stock exchange, praised the new government and said he was optimistic about the news.

“It’s clear the government wants to grow at rates above 2 percent, and for that you need more growth in capital markets,” Urquiza said. “We’ll see more dynamism for markets — it’s very positive and we’ll see the results in the coming months.”