Mining companies in Mexico are bracing for its recent Senate-approved legislation introducing a tax overhaul containing a new 7.5% royalty ahead of Q1 signage by President Enrique Pena Nieto; Latin America’s No. 3 economy is a leading producer of silver, gold, copper, zinc and mangnese.

The changes are expected to generate a near-term windfall for the Mexican government, though measures will ultimately drive away foreign investment, according to analysts; Goldcorp Inc. and copper conglomerate Grupo México officials have said the changes endanger new investments amid falling precious metal demands.

Once in effect on January 1, the reforms will include hikes in corporate income tax rates to 30%; a 10% tax on dividends for non-resident shareholders: a 7.5% mining royalty on tax deductible for income tax purposes (EBITDA); and a 0.5% environmental erosion fee for precious metals only based on EBTIDA gross revenues.

The new regime, according to observers, will increase the marginal tax rates for mining companies in Mexico to 41% from 30%; this figure varies on a case-by-case basis, however, owing to the precious metals tax. Mexico has witnessed a mining boom since opening the industry to foreign companies in 1990.