Mexico's lower house finance committee approved on Tuesday raising value-added tax and high-earner income tax rates as part of a government plan to reduce the country's dependence on waning oil revenues.

The finance committee approved lifting VAT to 16 percent from 15 percent and hiking income tax for high earners to 30 percent from 28 percent in an early morning vote after meeting through the night.

In international trade, the Mexican peso MXN= strengthened more than 0.7 percent to 12.8375 per dollar, its strongest level since its close on Aug. 21, building on strong gains on Monday as PRI lawmakers met behind closed doors to finalize their position.

The full lower house of deputies is under deadline to vote later in the day on the tax reform plan and on the income side of President Felipe Calderon's 2010 federal budget proposal.

The deputies rejected as expected a government proposal to add a new 2 percent sales tax to all goods including currently exempt food and medicine, after opposition lawmakers said such a tax would unfairly hurt low-income families.

The vote was a partial victory for Calderon as he strives to improve Mexico's paltry tax take and stave off threatened upgrades to the country's debt ratings.

Calderon's original proposal was watered down by the main opposition Institutional Revolutionary Party, or PRI, which is the biggest party in the lower house since mid-term elections earlier this year.

On Monday evening, the PRI said it rejected Calderon's bid to put a new sales tax on currently exempt food and medicine and said it would also dilute a planned telecommunications tax.

Calderon, who with his minority in Congress needs the PRI to pass legislation, had estimated his original tax proposal would have raised federal revenues by 176 billion pesos ($13.6 billion) in 2010. The PRI estimates its plan would generate 117 billion pesos in extra revenues.

The PRI is also expected to push for a higher government deficit than that planned by Calderon, who had asked Congress to approve a budget deficit of 2.5 percent of gross domestic product. Francisco Rojas, the PRI's leader in the lower house, said the party would seek to add on 0.3 percentage points of GDP to Calderon's proposal.

The PRI's tax plan also estimates that Mexican oil exports will sell for $59 per barrel next year, above the government's forecast of $53.90 per barrel. Mexican crude is currently selling at $72 per barrel.

Congress Mexico