Government Depleted Special Tax Funds to Contain Fuel Price Hike
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Government Depleted Special Tax Funds to Contain Fuel Price Hike

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Perla Velasco By Perla Velasco | Journalist and Industry Analyst - Thu, 02/16/2023 - 18:00

Mexico's Minister of Finance, Rogelio Ramirez de la O, stated that in response to the recent increase in gasoline costs, the federal government has depleted its reserves of the Special Tax on Production and Services (IEPS). The tax was used to contain rising fuel prices and prevent them from further impacting inflation.

Ramírez reported this was the first time the government deployed tax subsidies at this magnitude partly, due to pressure from the central bank’s out-of-the-ordinary interest rates. Had these subsidies not been granted, gasoline prices would have elevated transportation costs, further pushing the inflation rate up. Additionally, he said that the state absorbed a growth of over MX$70 billion (US$3.78 billion) in the cost of public debt due to the increase in interest rates.

As crude oil prices decrease and PEMEX’s debt payments approach, it has sought financial aid from the government. Nevertheless, following a bond placement, the NOC will reportedly pay its hefty 1Q23 amortizations on its own. Still, the government has expressed repeatedly that it will help the state company if needed.

The Ministry of Finance (SHCP) reported the past month that the NOC’s financial results were supported by special tax exemptions. Fuel subsidies reached MX$396.61 billion (US$21.01 billion) in 2022. Although the government had previously stated that these subsidies would be covered by oil income surpluses, this extra income only reached MX$394.51 billion (US$20.98 billion). The oil income surplus therefore fell MX$2.1 billion (US$111.66 million) short to cover the subsidies.

From SHCP’s funds granted to PEMEX, MX$288.60 billion (US$15.34 billion) did not directly enter the public treasury through Special Tax on Production and Services (IEPS), while the remaining MX$108.47 billion (US$5.77 billion) was compensated by the collection of Added Value Tax (IVA) and Income Tax (ISR).

Furthermore, SHCP also reported that PEMEX’s contribution to its shared utility right (DUC) fell from 65% at the beginning of the administration to 40%, as this was one of the financial tools to back the NOC. The decrease in its special tax freed a monetary flow between MX$3 billion (US$159.52 million) and MX$4 billion (US$212.69 million) for PEMEX. 

Nevertheless, according to policy watchdog IMCO, PEMEX received federal support of MX$809.8 billion (US$42.45 billion) for capital contributions, tax incentives and other aid from January to September 2022. “The figure received up until September 2022 is 140 percent higher than the MX$45 billion (US$2.36 billion) originally estimated for all of 2022 in the Federation Expenditure Budget (PEF) for that fiscal year,” reads the report.

Although the government did not specify how it would help PEMEX this time, PEMEX contributed only MX$137 million (US$7.4 million) to the Treasury for Hydrocarbon Exploration Rights in January 2023 and did not provide anything for the Shared Profit Rights and Hydrocarbon Extraction Rights categories. According to Energía a Debate, this is the first time the company has not contributed to these areas. What it did contribute represents 0.38% of what PEMEX contributed in December.

Photo by:   ndanko

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