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Mexican Government Drafting Bill to Reduce Tax Burden on Pemex

Mexico’s government will send a bill to Congress in September to improve state-owned Petroleos Mexicanos’s capacity to invest in projects by reducing the oil company’s tax burden, Finance Minister Luis Videgaray said.

The bill, which comes as the government tries to give other companies access to Mexican oilfields, would lower Pemex’s royalties and license fees, Videgaray wrote in an article posted on the ministry website today. To partially compensate for lower fees, Pemex would start paying income taxes on its drilling and exploration operations, he said.

The world’s fifth-largest crude oil producer, whose taxes fund about 34 percent of the federal budget, is headed for its ninth straight year of output declines, according to Pemex. President Enrique Pena Nieto sent a bill to Congress this week to arrest Mexico’s production declines by enticing private firms to develop oilfields in the country for the first time since 1938.

“It’s time to give Pemex a new tax regime,” Videgaray wrote. “A decision would be made whether the largest remaining resources are reinvested in the company or if a part is transferred to the Treasury as a dividend.”

The yield on dollar-denominated Pemex bonds due in Jan. 2023 rose two basis points at 2:07 p.m. in Mexico City to 4.61 percent.

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