By Octavio de la Torre
President of Concanaco Servytur
The increase in the minimum wage in Mexico has been a fundamental step towards improving workers’ welfare and reducing inequality. However, companies in the commerce, services and tourism sectors face significant challenges in maintaining their competitiveness, especially in an environment where productivity and the tax burden play a determining role.
Paul Krugman stated that “productivity is not everything, but in the long run it is almost everything”. This idea invites us to take a step back and think on how companies can adapt to the new economic conditions, where it isn’t enough to keep costs low, but it is essential to invest in innovation, efficiency and human capital to sustain long-term growth.
Productivity, The Engine of Sustainable Growth
Productivity, understood as the ability to produce more with the same resources, is the key to enabling companies to absorb wage increases without passing on costs to prices or reducing their workforce. However, in many cases, Mexican companies face structural barriers that hinder their ability to improve productivity.
The minimum wage increase should be seen as an opportunity for companies to modernize their processes and adopt new technologies. Recent studies show that companies that pay better wages tend to have lower employee turnover and more motivated and productive employees. In addition, job stability generates significant savings in recruitment and training costs.
However, achieving higher productivity is not an immediate process. It requires an enabling environment, including access to financing, adequate infrastructure and public policies that promote innovation. In this sense, the commerce, services and tourism sector faces a double task: adapting to wage changes and, at the same time, investing in the transformation of its operational processes.
Krugman’s phrase reminds us that while productivity is not the immediate solution to economic challenges, it is the factor that in the long term will determine whether a company or a country can remain competitive. It is a bet on the future that requires patience and strategic vision.
The Impact of The Tax Burden on Competitiveness
In addition to the challenge of productivity, Mexican companies must contend with a tax burden that, in many cases, limits their ability to compete in the global marketplace. Taxes, contributions and duties represent a significant cost for businesses, especially for small and medium-sized companies, which often have fewer resources to meet these payments.
Mexico occupies one of the last places among OECD countries in terms of tax collection as a percentage of GDP, but, paradoxically, formal companies and workers face a considerable and cumulatively high tax burden. This discourages formality and generates an environment where many companies prefer to operate informally to avoid the costs associated with legal contributions.
Among The Main Taxes That Affect Business Competitiveness Are:
• Income Tax (ISR): It taxes the profits of companies, reducing their ability to reinvest in their operations.
• Value Added Tax (VAT): It directly affects the final prices of products and services, impacting consumption.
• Social Security contributions in Infonavit: Although they are essential to guarantee workers’ rights, they represent a significant cost for companies, especially after salary increases.
• State and municipal taxes.
In addition to taxes, there are other rights and contributions that often do not translate into visible benefits for companies, such as access to better public services or infrastructure. This lack of perceived return generates discontent and encourages tax evasion practices.
The Need for a Comprehensive Reform
For companies to be more productive and competitive, it’s necessary to rethink the tax scheme in Mexico. The tax burden must be more equitable and be accompanied by policies that encourage formality and innovation. This includes:
• Reducing the tax burden for SMEs: Providing tax incentives to small and medium-sized enterprises can help them absorb labour costs and reinvest in their development.
• Administrative simplification: Facilitate compliance with tax obligations through simpler and more digital processes.
• Greater investment in infrastructure and training: The resources collected must be translated into better public services that benefit companies and the population.
• Improvement of public services, security, infrastructure, health, energy, among others.
Balancing Challenges and Opportunities
The trade, services and tourism sector faces a 2025 full of challenges, but also opportunities. Global economic recovery, nearshoring, and digitalization are trends that can greatly benefit Mexico if they are properly managed, if the rules of the game are not changed without consensus.
To this end, it is essential that companies adopt a long-term vision based on the continuous improvement of their productivity and that the government promotes fiscal policies that promote competitiveness without stifling formal businesses.
The key to success in 2025 and beyond will be finding the right balance between wage increases, the tax burden, and business productivity. It is time to bet on competitiveness and a fair sustainable Mexico.
In the words of entrepreneur Henry Ford: “True progress is making technology available to everyone.” Digitalization and innovation will be the sector’s great allies to face the challenges of this new economic environment.
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