Mexico's Increased Mining Royalties Could Deter $7 Billion In Foreign Investments

The Mexican Ministry of Finance (SHCP) has proposed raising mining royalties in the 2025 federal budget bill. The proposal suggests increasing two key taxes on mining activities, which is at a risk to the sector and the country's economy.

What Happened? The SHCP plans to raise the special tax on mining profits from 7.5% to 8.5% and the extraordinary tax on revenues from the sale of gold, silver, and platinum from 0.5% to 1%. The Ministry justifies the hike by citing rising global metal prices and the nature of those assets.

"Considering that minerals and substances from the subsoil are non-renewable public domain assets, it is proposed to increase the special and extraordinary rights on mining," the SHCP stated in the bill per bnamericas. The Ministry projects that the additional revenues will be allocated to government programs and projects, though specific details were not disclosed.

In 2021, an International Monetary Fund working paper by Alpha Shah explored Mexico's mining tax regime, concluding it was less burdensome than in many comparable nations. Shah's findings pointed out that there is room to increase the overall tax burden on mining while still maintaining competitiveness. The paper suggested a balanced redesign to boost the government's share of resource rents while ensuring the sector remains an attractive investment destination.

Why It Matters? Mining is important to Mexico's economy, contributing 2.5% to GDP and supporting 400,000 direct jobs. The country is the world's leading silver producer and a major supplier of gold and copper. However, with increasing global competition, Mexico could struggle to attract new investments under a higher tax regime.

The country needs significant investment to bolster its mining sector, which has already seen declining fiscal contributions. These contributions fell 32% in 2023, further underlining the need for a balanced approach to taxation. Furthermore, bnamericas noted that industry experts warned the proposed increases could discourage nearly $7 billion in mining investments by 2025, particularly as companies face other challenges, such as reduced concession terms and stricter water-use permits.

While the proposed taxes aim to capture more value from the mining sector, they may also reduce Mexico's appeal compared to peers like Chile, Peru, and Canada. These countries offer competitive tax regimes and have become increasingly attractive destinations for mining investment.

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