10% Profit Sharing diminishes Mexican companies’ competitiveness: experts

Note published in El Economista, Empresas [Companies] section by María del Pilar Martínez.
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The percentage of the profits that the workers have a right to has not changed in 35 years, without taking into consideration the changes that the national economy has undergone during all this time.

A year after the process to determine the percentage of profits to be granted to workers started, employers, workers and the government decided to keep it at 10%, which causes divided opinions between specialists who believe that Mexico is not competitive.

“PTU (Profit Sharing) is effectively eliminating the possibility of companies being competitive, taking into account that, at this time, the corporate rate including Income Tax and adding dividends amounts to 37% and, if you add 10% for profit sharing, the cost of doing business in the country reaches 47%”, calculated labor lawyer Oscar de la Vega.

He pointed out that “this percentage is also very costly for large companies and unattractive for foreign investment. While the corporate tax rate was reduced to 20% in the United States, companies in Mexico are subject to an income tax that, taking the dividend tax into account, can reach 37% and, with the addition of the PTU (Profit Sharing) payment, reaches 47%. If the employer is a natural person, the tax rate, including the PTU, can reach 52%, stated De la Vega.

He emphasized that the percentage of the profits that the workers have a right to has not changed in 35 years, without taking into consideration the significant changes that the national economy has undergone during all this time.

Fernando Yllanes, president of the Safety and Labor Commission of the Confederation of Industrial Chambers of the United Mexican States (Concamin) agrees to the above, as he said that the PTU was created at a time when the Mexican market and economy were very different, “we are entering a new commercial relationship process and the percentage of PTU paid is evidently too high; however, this is a great tripartite agreement”.

We should remember that since March 4, 1985, when the Third Commission set the percentage for employee participation in company profits at 10%, subsequent Commissions have kept the same percentage unchanged.

To a large extent, “this is why many companies have resorted to outsourcing or subcontracting, particularly under schemes of service companies, within the same group “insourcing”, or by third parties “outsourcing” in order to partially lessen the effects of profit sharing and reducing their costs in some of the activities they perform in order to continue being competitive, ensuring their progress and viability”, said De la Vega.