June 21 (Bloomberg) -- Mexican Finance Minister Agustin Carstens said Petroleos Mexicanos, the country's state-owned oil monopoly, can meet its capital needs without lower taxes through greater funding from the federal budget.

Carstens yesterday introduced to congress President Felipe Calderon's proposal to increase tax collection on companies and individuals through a flat tax on revenue and a 2 percent tax on cash bank deposits. The proposal didn't include a tax reduction for Pemex as some legislators had urged.

``We believe that the current tax law has been in place for a year and is working well,'' Carstens said about Pemex in a television interview with Grupo Televisa SA. ``More funds can be given to Pemex without changing its tax law.''

Congress approved a law in 2005 that reduced Pemex's tax rate to 55 percent of revenue last year from almost 61 percent of revenue in 2005. Pemex CEO Jesus Reyes Heroles has said taxes are still too high to give the company the funds it needs to tap deep-water deposits in the Gulf of Mexico. Pemex's tax rate as a percentage of pretax income was 93 percent in 2006 and 108 percent in 2005.

The oil company's budget is subject to congressional approval.

Pemex needs to spend at least $10 billion more a year to maintain crude production at current levels and make up for a decline at Cantarell, the company's largest oil field, Reyes Heroles said in a February news conference. Crude production last year fell to a daily average of 3.26 million barrels from 3.33 million barrels in 2005 and a peak of 3.38 million barrels in 2004.

Dependence

The tax proposal is designed to lower Mexico's dependence on oil revenue to fund the federal budget, Carstens said. In 2006, Pemex taxes accounted for 38 percent of federal revenue.

Under the proposal, the government would set a 16 percent tax on revenue less expenses for inputs and investment, helping eliminate the deductions and special tax treatment under the current income tax. The flat tax on net revenue would rise to 19 percent by 2009.

The government is also seeking to tax small companies and individuals that deal mostly in cash and don't pay income taxes properly by setting a 2 percent tax on bank deposits of more than 20,000 pesos (1,847) per month.

To contact the reporters on this story: Thomas Black in Monterrey at tblack@bloomberg.net

Last Updated: June 21, 2007 11:04 EDT