PEMEX Tax Burden to Be Further Reduced

The latest tax law proposal sent to congress contemplates an eventual reduction of 14 percentage points in the amount of income taxed from PEMEX’s upstream activities. 

At the beginning of this administration, tax on all oil extracted and commercialized by PEMEX stood at 65 percent. The tax in question is known as “Rights Over Shared Profits” (Derecho por Utilidad Compartida or DUC). Currently, the 2021 fiscal year will see the DUC exercised at 54 percent. This latest proposal from SHCP calls for the DUC to be reduced to (and be stabilized for years to come)a permanent 40 percent. This not only represents a reduction of 14 percentage points when compared to current 2021 levels, but also of 25 percent when compared to the NOC’s tax burden at the beginning of this administration. According to an analysis made by El Economista, up to 2021, these reductions equaled US$7.3 billion. While the NOC has begun easing its debt burden with additional resources, this has also put extra pressure on the federal government to find creative ways to cover these new gaps in its budget. 

According to a statement sent to congress by SHCP, “this proposal will allow the NOC to generate a structural change in its tax burden and thus liberate the resources that it needs in a permanent fashion, making the financial positions for both PEMEX and the federal government more robust in the medium to long term.” This proposal is based on an assumption that Mexican crude mix prices will average US$55 in 2022 and that national production levels during that same period will average 1.826MMb/d.  

This strategy is consistent with SHCP head Rogelio Ramírez de la O’s statements, made last week at Moody’s Inside LatAm seminary, pledging continued support to PEMEX from the federal government. Financial pressures continue to mount on the NOC; as much as US$44 billion of its more than US$106 billion in debt will have to be paid by the end of this administration’s six-year term in November 2024. 

Responses from investors and members of congress to this latest SHCP proposal have been mixed; in a rare breaking of ranks, congresswoman Nancy De la Sierra Arámburo (a member of the PT party currently allied to the ruling MORENA coalition) criticized the proposal, calling PEMEX an “inefficient” enterprise and accusing the administration of attempting to “save the unsaveable” by assigning money to PEMEX instead of to other sectors “more deserving and in need” such as health.