Aug. 24 (Bloomberg) -- Mexico's ruling party has agreed to include tax cuts for state-oil monopoly Petroleos Mexicanos as part of President Felipe Calderon's tax overhaul package so long as the reductions are gradual, Senator Gustavo Madero said.

Lawmakers are negotiating the extent and timing of the Pemex cuts, Madero, president of the Senate's Finance Committee, said in a telephone interview. The opposition Institutional Revolutionary Party has conditioned its support of Calderon's bill on lowering Pemex's tax burden.

``What has been accepted is to do it gradually from the first year,'' Madero said.

Agreement between the PRI and Calderon's National Action Party suggests congress may pass the tax bill in time to apply it to the 2008 budget. The bill could boost gross domestic product next year by as much as 0.5 percentage point because of additional government spending, Jorge Estefan, president of the lower chamber's Finance Committee, said Aug. 22.

Mexico's congress will resume session on Sept. 1. Legislators must agree on and pass Calderon's bill by Sept. 8 in order to include it in the 2008 budget.

Initial tax cuts for Pemex will be less than the 60 billion pesos ($5.4 billion) suggested by some opposition-party members, said Madero, a member of Calderon's PAN party.

`Consensus'

Estefan, a PRI legislator, said Calderon must also allow for some corporate deductions to win his party's support. The deductions to the bill's centerpiece alternative minimum tax on businesses, Estefan said in the interview with Radio Formula, could reduce collection by 0.4 percent of gross domestic product.

Madero said the PRI's suggestions partly stem from meetings legislators have held to discuss changes and do not come as a surprise.

``The changes are more of form than of substance,'' Madero said. ``There is ample consensus and we expect that the fiscal reform will be approved.''

Other additions to the bill suggested by the PRI include a capital gains tax on stock-market transactions that involve changes in company ownership.

``There aren't any deal breakers,'' Madero said.

The PAN is the largest party in congress followed by the Party of the Democratic Revolution and then the PRI.

To contact the reporter on this story: Patrick Harrington in Mexico City at pharrington8@bloomberg.net.

Last Updated: August 24, 2007 17:25 EDT