Understanding the Special Taxes (IEPS) in Mexico

According to data from the Secretaría de Hacienda y Crédito Público (SHCP) or the Ministry of Finance and Public Credit, the Impuesto Especial sobre Producción Servicios (IEPS) or Special Tax on Production and Services, brought in a collection of roughly US$ 250 Million in the first two months of 2022.

In the second year of recovery of the economy, the income obtained by taxing alcoholic beverages, such as wines, spirits and the like, has shown its greatest since the end of Enrique Peña Nieto's six-year term. The Impuesto Especial sobre Producción Servicios (IEPS), or Special Tax on Production and Services, collected approximately US$ 250 million in the first two months of 2022, according to data from the Secretaría de Hacienda y Crédito Público (SHCP) or the Ministry of Finance and Public Credit. According to data from SHCP, the Special Tax on Production and Services revenues represented an increase of 15% compared to the previous years. This represented the largest increase for this levy since 2018, when revenue grew 18.8%.

For years, different organizations and even associations of the alcoholic beverage industry have sought to update the way in which the tax is collected, considering that the current one pays for unequal competition. According to the Alianza Moderniza IEPS, a better way to collect this tax is through an ad quantum model instead of ad valorem, that is, instead of charging a percentage with respect to the production processes of the beverage, a fee in relation to the alcohol content of the drink.

The government of Andrés Manuel López Obrador hopes to raise an additional $1 billion per year by charging a special tax on production and services (IEPS) on alcoholic beverages under the ad-quantum system (by amount of alcohol contained in the product).

In Mexico, the special tax on production and services (IEPS) for alcoholic beverages was based on an ad-valorem criterion. According to Luis Foncerrada Pascal, economic advisor to American Chamber Mexico, the proposal (to the AMLO government) consisted of changing the system used to collect the IEPS on beverages with alcoholic content, that is, moving from an ad-valorem system (or value of the product or beverage) to an ad-quantum system for taxing the liter of pure alcohol contained in beverages.

The benefits of a tax on the amount of alcohol are an increase in collection of 750 million to 1.25 Billion USD, as well as an 400 million USD reduction in evasion and illegality. In many countries, taxes are levied on these additional products in addition to those levied on general sales: The specific ways in which these taxes are applied vary, but they all begin with two basic principles: ad-valorem —a system in which the product's value is taxed, which consists of applying a quota based on the price; ad-quantum, which considers the alcoholic content rather than the market price.

According to El Economista, there is easy access to alcoholic beverages with a high alcohol content, that is, those with an alcohol content ranging from 20 ̊ to 55 ̊, at a very low price, which allows access for low-income groups to alcoholic beverages, but with compromised quality, such as aguardiente, which is available in the market for as little as US$ 2.00. Taxing the alcohol content of beverages may also discourage the production of beverages with higher alcohol content, thereby encouraging the production of higher-quality products and maximizing the potential to reduce the social and health burdens caused by alcohol consumption.

According to the most recent updated figures from the Instituto Nacional de Estadistica y Geografa (INEGI) or the National Institute of Statistics and Geography, while the collection increased, the value of liquor sales also increased. Whiskey, gin, rum, and other cane distillates, such as anise and amaretto, significantly increased their sales value.


Commodity IEPS (Special Tax) Rate
Beverage with alcohol content up to 14% - 26.5% tax
Beverage with alcohol content above 14% and up to 20% - 30% tax
Beverage with alcohol content above 20% - 53% tax