UPDATE 1-Mexico tax reform cuts create $4.4 bln shortfall- Fin Min
MEXICO CITY, Oct 17 (Reuters) - Mexico's government expects a revenue shortfall of 55.7 billion pesos ($4.36 billion) due to proposed cuts to its tax reform, Finance Minister Luis Videgaray said on Thursday.
Presented last month, President Enrique Pena Nieto's plan to improve Mexico's weak tax receipts ran into opposition from business groups and conservatives in Congress, prompting lawmakers in the lower house to propose stripping divisive items from the bill.
Among measures finance experts in the lower house of Congress said should be removed from the initiative included the application of a value added tax on rents, mortgages and property sales as well as schooling costs.
Videgaray told reporters the finance ministry supported the changes made to the bill, which he said would create a hole of 55.7 billion pesos in the government's projected revenues.
On Wednesday, the lower house finance committee approved the revised bill, which now plans to levy a top income tax rate of 35 percent for those earning more than 3 million pesos ($233,100) a year. Previously, the top rate was due to be capped at 32 percent for people earning 500,000 pesos annually and above.
Lawmakers say Congress may raise its forecast for 2014 oil revenues to help make up the shortfall on the bill.
Mexico relies on revenues from state oil monopoly Pemex to generate about a third of federal tax receipts, and the 2014 budget had projected an average oil price of $81 per barrel.
Lawmakers in the ruling Institutional Revolutionary Party, or PRI, have said Congress could ratchet up the estimate for next year to $86 per barrel, the benchmark for this year.
The full lower house is expected to back the tax bill later on Wednesday, passing it to the Senate, which is scheduled to approve the reform by the start of November. The bill is tied to the 2014 budget, which must be signed off by mid-November.
Altogether, Pena Nieto's tax reform was intended to raise around $35 billion in new revenue over the next five years, or about 2.9 percent of Mexican gross domestic product (GDP).
Videgaray said the cuts to the tax reform meant it would only improve Mexico's tax take by about 1 percentage point of GDP in 2014, 0.4 points fewer than originally planned.
But it would still yield an additional 2.8 percent of GDP by the time Pena Nieto leaves office in 2018, the minister added.