Tax as a means to control Mexico’s health sector

April 2014  |  EXPERT BRIEFING  |  SECTOR ANALYSIS

financierworldwide.com

Over the last several years, the Mexican government has paid special attention to certain human health matters, resulting in much stricter regulation of most products intended for human consumption, including pharmaceuticals, medical devices, food, dietary supplements, beverages and cosmetic products. Health and other governmental authorities have also implemented a higher number of permits, authorisations, notices and procedures affecting those products. 

From statements and official information by government officials, the government’s reasons for implementing those measures directly relate to the admittedly embarrassing high rates of childhood and general obesity in the country. Another reason is the huge cost of treating obesity and a number of other illnesses. These expensive services are often perceived as the only adequate manner of preserving health. Whether or not the objective of fighting those problems will be achieved through recent reforms is an open question. Below we focus on the actual regulatory developments and their immediate implications. 

The complex legal framework for health in Mexico

Fundamental individual rights established by the Federal Mexican Constitution include a healthy life, meaning that the State has an obligation to provide for the health of its citizens, and the Federal Congress may legislate these matters. Based on this right and the government’s corresponding responsibility, the Federal Congress has enacted laws and regulations, particularly the General Health Law. The General Health Law gives health authorities the power to regulate all ‘processes’ (which include importation, transportation, packaging, handling, manufacturing, distributing, publicity, sale, etc.) related to any and all products intended for human consumption. 

The Federal Mexican Constitution gives the Executive Branch power to issue ‘regulations’ to laws passed by Congress. These regulations can only implement laws but cannot go beyond their scope. 

The Federal Law on Metrology and Normalization gives the Executive Branch the additional power to issue administrative guidelines that establish in a more detailed manner the particular technical requirements for products or services. These guidelines, formally known as ‘Mexican Official Standards’ (NOMs), should not technically and necessarily be considered legally binding. From a practical perspective, they are, and may be, challenged in the courts if required. 

The process of NOM creation allows the participation of interested individuals and legal entities, although their comments or criteria may not be taken into consideration. 

Additionally, there may be other provisions, such as decrees, guidelines, criterion, accords, etc. Although these provisions are legally required to be published in the Federal Official Gazette to become legally binding, they are often only circulated internally or published in informal media, such as a website or a bulletin. Technically, as mentioned, these provisions should not create or establish legal obligations until formally published, which may create additional confusion to the prolific regulatory framework applicable to these products. 

Recent developments in health regulation

Recently, a considerable number of NOMs related to products intended for human consumption have been enacted or amended. In general, these NOMs refer to products and services that, by virtue of the gap between technology and law, were lacking regulation. These NOMs are very technical in nature and should provide the authorities with greater administrative advantages in complying with the legal procedural requirements. 

Several amendments related to labelling food and beverage products and publicity requirements have also been enacted. These amendments essentially refer to labelling requirements, new food product category determinations (low, medium and high caloric content products) and publicity requirements. 

Based on the new provisions, individuals and legal entities must request publicity permits for television (whether public or cable) and movie theatre advertising of certain food products. It is likely that the administrative burden of these requests will raise practical problems not only for those individuals and legal entities marketing the products but also for the television and movie theatre operators. 

Tax law amendments regulating health matters

The most relevant food and beverage regulations this year are probably not included in a health or similar law or regulation, but rather in tax laws enacted in 2014. 

Currently, considerable excise taxes are imposed on the importation and marketing of several food and beverage products. In prior years, specific excise taxes were imposed on caffeinated and other beverages in an attempt to decrease final consumption by the population by increasing the final cost to the consumer. 

The purpose of this taxation was to stop or decrease consumption of specific kinds of beverages. It is likely that it has been ineffective, but there is not enough information at this time to determine the effectiveness of the measures. 

This year, similar taxes were imposed on beverages and food products, based on caloric content and other health-related concerns. The new tax laws establish that tax authorities may put together a specific list of products subject to this excise tax. However, they have had difficulty in establishing firm legal grounds upon which to determine high, medium or low caloric content product. Recent amendments to General Health Law Regulations may give them the legal grounds needed, but it is possible that these amendments are not wholly consistent with the Federal Mexican Constitution.

Additionally, new requirements on labelling, publicity, authorisation and permits for these products will make it easier for tax authorities to determine what products are subject to the excise tax upon importation and marketing. 

Whether the main purpose of these amendments is to control the Mexican population’s health problems, as claimed by governmental officials, or to simply collect more tax revenues, importing and marketing food and beverage products in Mexico is likely to be more challenging and complicated. 

There is a risk that this new and more restrictive environment will backfire on Mexico, promoting the illegal importation (contraband), manufacturing in inadequate premises and marketing of illegal food and beverage products in Mexico.

Mexico is currently in a state of transition, working to improve its status in the world and improve the wellbeing of its citizens. Its focus on health regulations and taxes is central to this transition. Only time will tell if recent changes will help or hurt Mexico in the long run.

José Alberto Campos Vargas is a partner at Sánchez DeVanny Eseverri, S.C. He can be contacted on +52 55 5029 8520 or by email: jacampos@sanchezdevanny.com.

BY

José Alberto Campos Vargas

Sánchez DeVanny Eseverri, S.C.