Attacking a tax-dodge mentality Taxes: For years, Latin American governments were among the world's worst tax collectors. But a campaign to go after tax cheats is yielding results.

THE BALTIMORE SUN

MEXICO CITY -- It has been a wretched year for Carlos Peralta, a swaggering young cellular-phone tycoon.

First, he was caught up in a corruption scandal, with the revelation that he had funneled millions of dollars to the brother of former Mexican President Carlos Salinas de Gortari. That led to his ouster as vice chairman of his company, Grupo Iusacell.

But perhaps the worst news came in a phone call to his Mexico City home one recent morning: Peralta had been indicted for tax fraud.

The indictment came about the time Mexicans, like Americans, face their annual tax deadline -- and symbolized a dramatic change in Latin America. From Mexico to Peru to Argentina, governments are attacking a tax-dodge mentality that dates to Spanish colonial days.

Peralta had simply made a few million dollars' worth of mistakes on his tax form -- "the kind of errors we all make," he explained to reporters. And he had quickly paid the $6 million he owed. But he faces a possible jail term. And "his days of hobnobbing with the top circles of power in Mexico are definitely over," crowed the Mexico City daily Reforma.

For years, Latin American governments were among the world's worst tax collectors. Part of the problem was hyperinflation, rTC which made tax revenue shrink. In addition, the tax base was tiny. The poor majority of the population earned too little to contribute. And the wealthy minority could feel secure from scrutiny. Their political clout was reflected in slap-on-the-wrist tax laws, which often ranked evasion as a misdemeanor. Rich folks rarely went to prison over taxes.

But that is changing. With free trade, governments can no longer fill their coffers with fat tariffs on imported goods. They can't raise business taxes without scaring away foreign investors.

If evasion was once dismissed as a national sport, it's now attacked with missionary zeal. "We don't have a zest for persecuting people," says Tomas Ruiz, Mexico's top tax collector. "The idea is simply that the taxpayer knows we have the means to check up on him." But the results include tax campaigns that make the Internal Revenue Service look coy.

For the first time, taxes are emerging as an election issue. And Mexican politicians are learning what politicians elsewhere already know, that railing against the tax collector is a no-lose campaign strategy.

The ruling-party candidate for the powerful Mexico City mayoralty, Alfredo del Mazo, faced a hail of tax complaints during a recent visit with business leaders at an industrial park. They charge that the government is turning into a calculator-wielding Big Brother.

"The tax authorities are getting more rigid, they are bombarding us with their oppressive publicity, and they're charging enormous fines and interest when we don't pay some tax," fumed Pedro Salcedo, head of a major industrialists group. The tax "terrorism," he told the candidate, "couldn't be worse."

Business figures point with alarm to measures such as a letter that Mexican authorities sent to travel agencies last fall, asking them to report on clients who had made foreign trips in the previous two years.

Treasury Minister Guillermo Ortiz Martinez says authorities were simply after offenders who, for example, fly to Paris first-class three times a year but barely pay taxes. "Such scenarios do not fit together," he said in a radio interview. But, faced with an outcry, authorities recently suspended the program.

Ruiz, undersecretary of Mexico's Treasury Ministry and the chief tax collector, is a 34-year-old Columbia University graduate with a round, serene face. He arrives at an interview wearing a no-nonsense blue suit and a tie with little orange Indians. There are stories that he grew his thick beard to look older; he denies it.

"It's to look more evil," he jokes.

Ruiz is unrepentant about the tax campaign. In the past, he says, Mexican businesses had a kind of bargain with the government. The business people supported the long-ruling Institutional Revolutionary Party; in exchange, they could negotiate their way out of taxes, or at least, penalties. But that arrangement is over.

The campaign has yielded results. From 1987 to 1994, tax collections increased by more than $30 billion. But changing cultural attitudes takes time. Last year, authorities were alarmed to see that collection of the all-important value-added tax -- equivalent to a national sales tax -- had dropped 30 percent. Part of the problem was a severe recession; but even more important, authorities realized, strapped business owners were keeping sales taxes as a sort of slush fund to pay bills.

It's not easy to convince people of the civic obligation to pay taxes. Taxes have rarely been associated with democracy in Latin America. There's been no Boston Tea Party here, no victorious fight that tied taxation to representation. That's even reflected in the Spanish word for taxes: "impuestos" -- literally, things that are imposed.

"The history of taxes, for Mexicans, is a history that stems from their destruction as a civilization, and their conquest" by the Spaniards, says Lorenzo Meyer, a noted historian. "Taxes were associated with the extraction of wealth from a defeated people."

But the problem is more extensive. For decades, Latin American politicians have helped themselves to public funds. Citizens stuck with potholed roads and crumbling schools don't see their tax money at work.

Meyer notes that the Mexican government's ads threatening evaders often run next to newspaper articles that detail alleged multimillion-dollar corruption under former President Salinas. "Given that the corruption is so huge, and most taxes don't go where they should, people think, 'What's so bad about not paying?' " he says.

In some countries, citizens complain that officials are still hesitant to go after the rich. In Mexico, many believe that authorities continue to use audits as a weapon against critics or those who have fallen out of government favor.

Such suspicions have emerged notably in the high-profile case of Juan Francisco Ealy Ortiz, publisher of the Mexico City daily El Universal. He was charged with tax fraud last fall -- after he reversed the newspaper's pro-government line. Ealy claims he's a victim of political persecution.

Officials deny that charge. But, acknowledging concerns about political manipulation, the Mexican government plans to remove tax operations from the Treasury Ministry this summer.

The idea is to create a new institution staffed by professional bureaucrats that will ostensibly be efficient, fair and independent of political pressure. An institution, officials say, that represents the best of democracy.

An IRS?

Pub Date: 4/15/97

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