Producers cautious of government demands as Mexico moves towards incentives

Seven months into a new government term, and with the risk of being left behind by other countries, Mexico is getting closer to the goal of launching nationwide audiovisual incentives. However, the local production sector is pushing back against the demands that the government intends to impose in return.

From North America to Tierra del Fuego, practically all Latin American countries are now working in one way or another to attract as many audiovisual productions as possible to their territory. Tax incentives, together with cash rebates, have been the two main measures taken by the region’s governments.

But Mexico, despite the obvious weight of its film and television industries, still lacks a national tax incentive plan for audiovisual production. The question is: does it need one?

According to data from 2023, the audiovisual industry accounted for 1.25% of the country’s gross domestic product (GDP) and 11.6% of the GDP of its capital, Mexico City. Mexico City alone, in fact, reported an investment of US$583m in the sector in 2023.

Although these are significant figures, according to Guillermo Saldaña, general director of the Mexico City Film Commission (CFilma), they could increase to US$800m if the city had a fiscal stimulus. Saldaña adds his voice to those of countless local producers, who warn of the risk of losing competitiveness if measures are not taken soon.

It is no coincidence that Netflix’s original Mexican reality show La Ley de la Selva (The Law of the Jungle) has chosen to shoot in Colombia, that ViX’s original series Isla Brava recreates Mexico in the Canary Islands or that the Mexican adaptation of gameshow Still Standing is being filmed in Uruguay.

“The average investment in Mexico City by the audiovisual industry is between US$550m and US$600m per year. According to our calculations, if an incentive were launched, we could move to US$800m per year, with the higher goal of doubling that number,” Saldaña tells C21’s sister publication Cveintiuno.

While the new Mexican president Claudia Sheinbaum is happy to countenance a tax on streaming platforms and digital companies to create a solidarity telecommunications fund, as was revealed in February, only the state of Jalisco has an incentive program for the audiovisual industry beyond the national incentives granted by the Mexican Film Institute (IMCine) exclusively to local cinema.

Filma Jalisco, the public entity that promotes the incentive, launched an economic policy in 2022 that today oversees a cash rebate of up to US$150m per year. According to Jorge Riggen, who was director of Filma Jalisco until last November, the growth of the industry in the state has since been “brutal,” with an economic spillover of more than MX$817m (US$41.2m).

“Jalisco’s panorama has changed radically. Before 2022 we were growing at a stable and constant 20%, but as of last year we grew by more than 70% and the trend continues for the end of this year,” he said, prior to his departure from Filma Jalisco.

At the national level, Sheinbaum and the new head of government of Mexico City, Clara Brugada, have an agenda to continue with the work done by previous administrations in this area. Sheinbaum and Brugada began a new six-year term in office in October, replacing in their respective positions as leaders of Morena, the leftist political party to which they both belong.

Within the private sector, the National Film Chamber (Canacine), the Mexican Association of Filmmakers (AMFI) and the Motion Picture Association (MPA) have been the main promoters of the creation of incentives.

“Canacine has delegations in 13 Mexican states and the mission of each is to develop the film industry. For this development it is very important to have incentives. They cannot be fiscal, because taxes are collected federally, but cash rebates or cash back can be promoted, where the states return a percentage of what has been invested in a filming in order to attract producers,” says Tábata Vilar, general director of Canacine.

“We are hoping that state governments become more aware of the opportunities that audiovisual productions bring to their states because they also generate tourism. People are increasingly deciding where to travel based on what they see on their screens. In fact, the term screen tourism already exists,” adds Vilar.

But, if the current figures and future projections are so positive, why has a tax incentive still not been authorised at the national level and in other states? The answer given by the government is that the audiovisual industry must first be formalised.

According to data from Canacine, 75% of the Mexican audiovisual industry is made up of direct, indirect or induced workers. And it is assumed that half of them are in the informal sector. It is public knowledge that in the country it is customary to hire freelance employees, with cash payments to avoid tax controls and working hours limitations.

In the conversations being held between the government and the industry, the authorities have made it a requirement to resolve this situation.

“The conversation is on the table and we are open, but for us to agree an incentive we must see that there is labour dignity. The companies have to formalise, they have to pay taxes. And I mean that all crews must have fiscal responsibility, they must pay social security,” emphasises CFilma’s Saldaña.

With these measures, he argues, the country’s human resources would have solid foundations, a well-paid job and decent conditions. “When you ask for a cash rebate or a tax rebate, everyone enters a natural audit, here or in China. If you formalise completely, you get 16% VAT back. Then we can talk about 8% or 9% to complete 25% of what would be an incentive. Let’s put all the elements on the table, you can’t have one without the other,” he adds.

The Mexican government is nevertheless close to making moves regarding such incentives. Some sources claim there is already a formal proposal for a 26% stimulus at both the Mexico City and federal levels, but given that the country is in the aftermath of a major political transition, there have been no official statements on the matter.

However, and perhaps paradoxically, uncertainty and dissatisfaction in the private sector has increased to worrying levels in light of recent events. Many of the producers say they were “very upset” about this, since there is talk of fines and even jail sentences if they do not comply with the formalisation requirements. They argue that the government has not given the green light to any stimulus and that there is no commitment whatsoever.

Apparently, several producers have even threatened to form a new trade association, reflecting high dissatisfaction with the direction and agreements of the organisations currently promoting this initiative.

A Mexican producer told Cveintiuno that the measures requested by the Mexican government would represent an increase of 25% in production costs. Therefore, in his opinion, the tax proposal being discussed would exclusively benefit the international market and in fact harm domestic production.

Many voices within the industry have also expressed concern about the centralisation of the industry in the nation’s capital, which during 2023 hosted 1,231 shoots, representing between 85% and 90% of national production.

“There is a need to decentralise the country in every sense, not only in production. Mexico City is overcrowded with filming. I always had this ‘happy problem’ because we receive several of these productions, but the neighborhoods are saturated and there have been protests. The solution is to decentralise,” said Riggen, who was replaced at the helm of Filma Jalisco by Alejandro Tavares in November.

With Mexico last month bringing a delegation of Hollywood executives and producers to Mexico City and Guadalajara for the international promotion of Mexico as an audiovisual production centre, there are signs Sheinbaum is taking this issue seriously. Another good sign is Netflix’s announcement in February that it would be investing US$1bn on the production of Mexican series and movies over the next four years and will make an investment to improve the iconic Churubusco Studios.

Nevertheless, the rest of the Ibero-American countries continue to move forward with their own incentive programs, perhaps absorbing more Mexican productions thanks to their comparative advantages.

The question that Mexico’s new government, authorities and producers should be asking themselves is not whether they need these incentives, but how much loss of competitiveness they are willing to take.