BBVA México and IMEF Warn Capping ISR Deductions Would Discourage Private Investment

Mexico City — BBVA México and the Mexican Institute of Finance Executives (IMEF) warned that capping corporate income tax (ISR) deductions would further discourage private investment at a time of weak domestic demand, and would have a “devastating” effect on some industries.

Carlos Serrano, BBVA México’s chief economist for Mexico, said limits on corporate ISR deductions could chill private investment. He said the government’s concern over widespread tax avoidance through the use of fake invoices is legitimate and understandable, but argued that raising tax revenue will be very difficult without a comprehensive fiscal reform.

Víctor Manuel Barajas, president of the IMEF’s National Technical Committee on Fiscal Studies, said the proposed fiscal measures would have a “devastating effect” on some industries, discouraging investment and undermining the country’s legal certainty and competitiveness. He added that those who issue fake invoices would not be affected, because the plan limits deductions without targeting the invoice-fraud operations themselves.

For Víctor Manuel Herrera, president of the organization’s National Committee on Economic Studies, the measures discourage investment because companies will ask why they should commit capital if they cannot deduct it in full. He compared the proposals sent to Congress to earlier levies that proved unfavorable, such as the minimum tax on assets and the Single-Rate Business Tax (IETU).

Targeting Fake Invoices Instead

BBVA México argued that it would be more effective to attack the problem directly by strengthening measures against the issuing and use of illegal invoices, rather than broadly limiting deductions.

“Since a large part of the expected increase in tax revenue will rest on lower corporate ISR deductions, incentives for reviving private investment could be reduced. This could affect potential growth and, eventually, have a structurally negative impact on tax collection itself,” Serrano said.

Mexico’s tax revenue as a share of GDP is the lowest in the OECD and significantly below most of Latin America, according to the article’s cited figures.

Who Would Be Hit Hardest

According to the IMEF, the 2027 fiscal package does not create new taxes or raise general rates, but introduces mechanisms that substantially increase the effective tax burden on corporations.

The IMEF said the new mechanism limits authorized deductions for corporations with income above 50 million pesos that report taxable profit and have at least five years of operating history. Sectors such as distribution, retail and manufacturing — which are characterized by high revenue and thin margins — would be the most affected.

“The deduction control mechanism, with a cap of 96.67%, does not distinguish between improper deductions and legitimate ones: in low-margin companies, ISR can rise by as much as 66.5% or even exceed actual profit. Sectors such as distribution, manufacturing and retail will be the hardest hit. Deferring unused deductions for 20 fiscal years, subject to the same limits, makes their effective recovery uncertain,” Barajas said.

Barajas added that the margin for maneuver in Congress is narrow and stressed the importance of making companies aware of the impact. “The effect will be devastating in some industries,” he said.