Mexico faces fiscal pressure as ISR revenue hits two-decade low

Mexico's Income Tax (ISR) revenue fell to 52.2% of total tax collection during the first seven months of 2026, marking its lowest level for a comparable period in two decades. While Value Added Tax (VAT) and Special Tax on Production and Services (IEPS) saw increases, the decline in ISR—driven by lower corporate and provisional payments—has created fiscal challenges.

To reach a revenue target of 6.264 trillion pesos by 2027 without raising tax rates, the government is proposing measures to limit legal deductions. These proposals include restricting the use of tax losses for corporations with revenues exceeding 50 million pesos and reducing the limit for net interest deductions from 30% to 20%.

Economists warn that if ISR revenue remains stagnant, the federal government may be forced to freeze public works and road maintenance to protect funding for social programs. Critics note that these proposed restrictions on deductions could affect legitimate business expenses in an effort to collect revenue more quickly than investigating fraudulent invoicing.