The fluctuation of the exchange rate is not only a concern for economists and businesspeople, but also for the general population and professionals such as accountants, who must consider the potential impacts on taxpayers.
Claudia Sheinbaum's election as Mexico's next president and the potential judicial reform led to the bursting of the "Super Peso" bubble, resulting in a significant depreciation of the national currency, approaching 19 pesos per dollar within a few days.
From a technical perspective, exchange rate fluctuations have several tax implications that need to be considered. These deviations primarily affect assets and liabilities denominated in foreign currency. For example, if a company has obligations or liabilities in dollars, an increase in the exchange rate increases the value of these liabilities in pesos, leading to a loss that must be reported for Corporate Income Tax (ISR) purposes. Conversely, the higher valuation of dollar-denominated assets on the balance sheet results in gains in the income statement, which are also subject to Corporate Income Tax.
What are the consequences if the exchange rate continues to rise?
A sustained upward trend in the exchange rate can have serious economic implications. The persistent rise in input prices and dollar-denominated trade obligations can create significant inflationary pressures. This would increase operating costs for businesses and ultimately raise prices for many essential goods and services for the population.
Such an inflationary spiral would make it difficult to maintain high interest rates, which are crucial for maintaining a favorable exchange rate, and could lead to an accelerated depreciation of the peso.
Are there any benefits from the dollar's rise?
Exchange rate fluctuations also impact the Mexican economy, particularly the purchasing power of recipients of remittances. Due to the peso's appreciation, these individuals experienced nearly a 20% decline in purchasing power. However, in the short term, this situation can stimulate the local economy as increased demand for products and services for immediate consumption can lead to economic revitalization.
On the other hand, the tourism industry may benefit from a weaker peso, making Mexico a more affordable destination for foreigners. However, this potential benefit could be undermined by public safety issues, which also influence perceptions of Mexico as a travel destination.
For the export sector, a weaker peso could provide relief and improve its competitiveness in the international market. When the peso was very strong, Mexican exporters struggled to compete due to high prices of their products. With a more favorable exchange rate, these products may now be more attractive to foreign buyers.
Comments