What is IEPS tax in Mexico?

The Special Tax on Production and Services (IEPS) applies to the production and sale of certain goods and services in Mexico.

If you're in Mexico, it's important to know about this tax, as it applies to products such as tobacco, alcohol, and high-calorie foods.

What is it for?

It was created to control the use of products that are harmful to health and the environment. It also regulates high-value products.

Thus, this tax taxes alcoholic beverages and beer. It also includes tobacco and cigarettes. In addition, high-calorie foods, such as junk food, are taxed. Finally, taxes are applied to soft drinks and beverages with added sugars.

It also applies to fossil fuels, such as gasoline and diesel. This affects the price of certain products, such as Magna gasoline. It also covers pesticides and toxic chemicals.

IEPS also taxes telephone and internet services, gambling and lottery operations, and lodging services.

>> Learn about the business structures that exist in Mexico

How is this tax calculated and how is it applied?

In some cases, the tax is applied as a fixed amount per unit, while in others it is calculated as a percentage of the sales price.

It is important to remember that it is an indirect tax. Unlike other cases, such as income tax, indirect taxes are imposed on consumption and the purchase of goods and services.

Thus, those who pay the IEPS are the individuals or companies that produce the goods and services. However, in practice, the costs are passed on to the prices of the products or services. Therefore, those who actually end up paying the tax are the buyers.

What does the law say about this?

It was incorporated into the Value Added Tax (VAT) Law in 1992, and the IEPS Law was finally created in 1998. Over the years, the tax has undergone several changes, and the list of taxable products has been expanded.

The current Special Tax on Production and Services (IEPS) Law specifies the purpose of the tax and the obligated subjects. It also lists the taxable goods and services, the rates, their calculation, and the transfer of the tax to buyers, as described above.

The law also establishes other important issues. Those who pay the IEPS must register with the tax authorities. Furthermore, they must keep adequate records of taxed sales and liquidate and report the corresponding tax. Furthermore, the law provides measures to monitor compliance with the tax and establishes penalties for non-compliance or evasion of the regulations.

>> Discover our article "Doing Business in Mexico" for an overview of investing in this country.

IEPS: benefits and disadvantages

We can conclude that the IEPS (Income Tax on Persons and the Environment) is relevant to the development of health and environmental policies in Mexico. On the one hand, it regulates the consumption of products that are harmful to people and the environment. On the other hand, it generates resources to fund social and environmental welfare programs.

However, there are criticisms regarding its impact on the market. For example, it can generate distortions that affect low-income sectors. Furthermore, its effectiveness depends on the demand for certain products, and if some companies evade it, it can lead to unfair competition.

In short, the IEPS plays an important role in regulating consumption and generating revenue for the Mexican government, but its economic and social impact can be subject to debate and discussion.