Informal Economy and Tax Evasion: Ongoing Challenges for Revenue Collection and Combating Money Laundering in Mexico
The issue of money laundering in Mexico goes beyond traditional illicit activities, extending into areas such as the informal economy and tax evasion—interrelated problems that have complicated tax collection and pose risks to the economic system. This is a warning from the Mexican Institute of Finance Executives (IMEF), whose experts highlight Mexico’s structural lag in tax revenue compared to other Latin American countries and the Organization for Economic Cooperation and Development (OECD).
According to data from the Economic Commission for Latin America and the Caribbean (ECLAC), Mexico collects the equivalent of 17.7% of its Gross Domestic Product (GDP) through taxes, placing it among the Latin American countries with the lowest tax collection. This is well below the regional average of 21.3% and the OECD average of 33.9%. For instance, countries like Brazil reach a percentage nearly double that of Mexico.
One of the main factors behind Mexico’s low tax revenue is the high prevalence of the informal economy, which, according to the most recent data, accounted for 24.8% of GDP in 2023—the highest level observed in at least two decades. Additionally, more than half of all jobs in the country are generated in the informal sector. This dynamic fuels tax evasion, as economic participants operating outside the oversight of the Tax Administration Service (SAT) do not contribute to the income tax (ISR), lack official registry, and often conduct cash-based transactions, making it difficult to trace funds.
The informal environment creates fertile ground for illicit funds to be funneled into the formal financial circuit, whether by individuals or businesses, facilitating money laundering and terrorist financing activities. This was the conclusion of the 2023 National Risk Assessment on Money Laundering and Terrorist Financing, prepared by the Financial Intelligence Unit (UIF), which also warns about the use of shell companies created for the purpose of simulating economic activity and evading legal requirements.
Mexico’s tax authority, the SAT, has intensified its efforts to tackle these challenges. In recent years, audit initiatives have been accompanied by staff training programs and the incorporation of advanced tools like artificial intelligence, which are used to analyze and cross-check data before conducting audits. According to its 2025 Master Plan, the strategy particularly targets large and medium-sized companies, as well as economic sectors identified as having high rates of tax evasion and avoidance.
Looking ahead, the challenges to improving tax collection and combating money laundering will continue to revolve around reducing high levels of informality, strengthening regulatory mechanisms, and closing gaps that enable illicit activities through sophisticated means such as simulated transactions and fake invoicing. The evolution of the legal framework and the use of advanced technology will be crucial for increasing transparency and strengthening public finances in the country.
In summary, Mexico’s economy faces the persistent challenge of integrating a large informal sector and tackling tax evasion practices that facilitate the flow of illicit funds. Institutional strengthening and technological modernization are key tools to address these issues and guide Mexico toward a more formal, transparent, and robust economic environment.
