MEXICO CITY (Reuters) - Mexico aims to gradually reduce a crippling tax burden on state oil monopoly Pemex, replacing a high levy it currently pays with a royalty and a more flexible taxation scheme, a senior finance ministry official said on Monday.
The plan details an energy reform proposal Mexican President Enrique Pena Nieto presented earlier this month, which aims to wean Mexico’s government off its dependence on Pemex’s aging oil fields for its tax revenue.
That in turn would free up Pemex PEMX.UL to invest more of its own revenue to exploit new and mature oil and gas fields in a bid to stem a near decade-long slide in output.
It’s part of a raft of reforms Pena Nieto hopes to pass to help boost growth in Mexico, from an already approved measure to buoy competition in the telecoms sector to a bill aimed at increasing lending that is slowly moving through Congress.
As part of the fiscal overhaul, a levy that forces Pemex to pay the bulk of its revenue to the government would be replaced with an income tax, a royalty and a dividend payment, Miguel Messmacher, Mexico’s deputy finance minister for revenue, told Reuters.
“What we want to do is move away from a system based on the ordinary hydrocarbon tax with a very high rate and a very rigid scheme ... towards a scheme that is very similar to what other public companies in other countries face,” Messmacher said.
Pemex, the world’s 10th biggest producer of crude oil according to OPEC, has seen output decline by a quarter since 2004. The government collects about a third of its budget from Pemex in taxes.
Pemex last month reported its steepest quarterly loss since 2011, at 49 billion pesos ($3.8 billion).
The government’s plan, which will be presented next month along with a broader fiscal reform, aims to replace the 71.5 percent ordinary hydrocarbon tax with a “much smaller” royalty, Messmacher said, though he said the specific rate has not yet been decided.
Under the new scheme, Pemex would also pay a dividend that would be proposed by the finance ministry and approved by Congress, which would be calculated based on investment plans reported by the state-oil company, Messmacher explained.
He said Pemex would likely start by paying out contributions to the government that are similar to what it currently pays.
“Little by little Pemex will set aside more of its profit after taxes for reinvestment,” he said.
The regime would go into effect immediately for the new profit-sharing contracts authorized by the government’s proposed energy sector overhaul.
Details about the tax regime for these profit-sharing contracts are not yet known.
The Pena Nieto’s energy proposal, if approved by Congress, would be the most sweeping reform of Mexico’s energy sector since the government expropriated U.S. and British oil companies in 1938, but some analysts say it may not go far enough to entice investors.
Editing by Simon Gardner and Lisa Shumaker