The approval of the Ley de Egresos 2010 (Expenditure Law) last November by legislators has created some uncertainty for the new gaming sector in Mexico. With the increase in the Production and Services Tax (IEPS) from 20% to 30% and additional levies on alcoholic beverages, operators in the emerging Mexican market will have to take these into account when considering future expansion. The Mexican government is seeking tax revenues to cover an estimated budget of US$240.8 billion and is looking primarily at those 40% of businesses within the formal economy. However, the problem in the gaming sector, which is operating under archaic and mostly inapplicable laws, is the possible retreat of some operators into the informal, or illegal, market.

In one report on the matter Kim Pasha, CEO of the Spanish company Codere, commented that a 50% increase in IEPS in the gaming sector “would remove the incentive for investment and could put at risk many jobs in the formal economy” and added “Some operators would stop paying taxes. Instead of collecting more, less will be collected because some will turn to the black market.”

Certainly the tax burden that gaming operations carry, on gross gaming revenue, company taxation and IEPS as well as local state taxes, is likely to slow down the pace of expansion during this year. In 2009 the gaming industry in Mexico grew by 20% with revenue of US$902 million in spite of the effects of the H1N1 virus, the enactment of the anti tobacco law and the depreciation of the Mexican peso. Growth in 2010 could be limited to 10% in a market yet in its infancy. (E-02.09.10)

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