In an interview for the newspaper El Norte, published in the Business section on January 29, 2024, Gustavo Leal Cueva, partner of Leal Benavides y Cía., talks about how the new minimum wage for 2024 is at a level where the Employment Subsidy (ES) is no longer applicable, causing minimum wage earners to be taxed for the first time in history.
The ES is a fiscal support aimed at low-income workers that until 2007 was known as Crédito al Salario (Wage Credit), and as of 2008 this credit was eliminated and replaced by the ES, which operates exactly the same way as its predecessor, with the difference that, as of such year, the Law no longer contemplates that the subsidy ranges be updated with inflation, Therefore, it was predicted that wage and inflationary increases would end up diluting the compensatory effect of the ES, which began to happen as of 2019 in the northern border area, and in 2024 it has become generalized due to the increase in minimum wages in recent years.
The de facto disappearance of the ES means that minimum wage workers will be impacted with a strong increase in the tax they pay. The minimum wage for 2024 is 7,467.90 pesos per month and this will be subject to Income Tax (ISR) of 495.41 pesos, also per month.
In 2023, the minimum was 6,223 pesos per month and only paid 70.23 pesos of ISR, due to receiving an "employment subsidy" or "salary credit" of 294 pesos per month, which by 2024 will no longer be granted at that salary level.
"As of 2024, the workers who could be entitled to the 'employment subsidy' will be only those who nominally receive in the month a salary lower than the minimum wage. This can occur only in the case of workers with reduced working hours, reduced week or who have absences during the month, so that in their gross monthly salary they receive an amount lower than 7,467.90", explains Leal Cueva.
"There is a de facto disappearance of the 'employment subsidy' that had been occurring in recent years as a result of the minimum wage hikes in the current administration," he emphasizes.
"But it is also because, unlike the income tax rate for which a mechanism for indexing amounts to be paid according to inflationary increases is foreseen, the 'employment subsidy' table is not updated," he adds.
The other problem that arises is that, although the minimum wage is not tax exempt, the Income Tax Law itself provides that employers should not make withholdings on such salary. This does not mean that the minimum salary is exempt, but only that the employer must not withhold the tax; however, it does not provide a mechanism for the worker or employer to pay this tax.
Given that in the history of the ISR, minimum wages did not cause tax (thanks to the ES), the Law never foresaw this situation that nowadays arises, complicating the correct compliance for taxpayers. Even the tax law contains a series loopholes that provide the tax to be caused, but no one is required to "pay it"; that is, to file it before the authority and pay it.
It is urgent that the authorities establish an updated mechanism so that employers and workers have legal certainty as to how to proceed in these cases.
