Fluvio César Ruiz
Professional Board Member
PEMEX
/
Insight

PEMEX's High Tax Burden

Tue, 01/22/2013 - 17:03

Pemex does not control its financial situation; the federal government both sets its tax rate and decides how the company allocates its budget. Pemex’s taxes are calculated as a percentage of its sales revenues for the year. An example of the extent of taxation that Pemex faces is Article 7 of the 2013 Federal Income Law, which obliges Pemex to make daily payments of MX$634 million (US$49 million), including o·cial holidays. Since 1989, Pemex’s tax burden has exceeded 60% of its total revenue. In comparison, Petrobras pays an average of 35%, almost half as much as Pemex. However, in Mexico the high tax level has long been an essential source of funds for the federal budget. Last year, Pemex achieved record sales of US$126.6 billion, up from US$111.4 billion in 2011. The company also paid a record US$60.4 billion to the federal government in taxes and duties, leaving it with a net profit of just under US$400 million, and contributing 35.4% of the federal budget. The federal government budgetary dependence on Pemex is caused by a structural problem of the Mexican economy. In 2011, Mexico collected 19.7% of GDP in taxes, while the average among members of the Organization for Economic Cooperation and Development (OECD) taxes represent on average 33.8% of GDP. If oil taxes, duties, and royalties were to be discounted, Mexico’s tax collection would only reach 13.9% of GDP, which is comparable to countries like Congo and Ghana. Experts agree that the energy reform on its own will not be the solution to Pemex’s fiscal burden, but that a fiscal reform has to be carried out in parallel to alleviate Pemex fiscal strangulation: “These two reforms have to come together in order to be successful. The Pemex’s tax regime has to be revised and the fiscal burden lightened to provide budgetary and managerial autonomy to Pemex,” explains Fluvio César Ruíz Alarcón, Professional Board Member of Pemex.