Fossil Fuel Support - MEX
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MEXICO: GENERAL METADATA
Data documentation
General notes
The fiscal year in Mexico coincides with the calendar year.
Producer Support Estimate
Following the constitutional reform of the energy sector, the Mexican government signed a new fiscal regime for the oil and gas sector into law that will take effect on January 2015. The new regime is two-fold collecting a corporate income tax of 30% plus a set of taxes and fees varying depending on whether extraction and exploration is conducted as: (a) assignments (asignaciones) which are only granted to Pemex or a "state productive company" or (b) contracts signed with Pemex, either in association with private entities or with private entities entirely on their own.
Under the assignment regime, state-owned companies pay three different types of federal fees: (i) a shared profit fee, (ii) a hydrocarbons extraction fee and (iii) a hydrocarbon exploration fee. The shared profit fee applies to the value of extracted hydrocarbons during the corresponding fiscal year (including consumption of these by the assignment holder, spillage and flaring) minus deductions. The fee will initially amount to 70% in FY2015 and will be lowered to 65% by FY2019. Next, the hydrocarbons extraction fee is determined in a similar way to the royalty payments charged under the contractual regime with fees varying on a sliding scale depending on the type of hydrocarbon extracted and the prevailing international price. Finally, the hydrocarbon exploration fee, also known as surface rental fee, will be charged on a monthly basis depending on the surface area being explored. The fee is aimed at incentivising companies to fulfil their exploration plans within a specified time frame.
With respect to the contractual regime, there will be four different contract types: licence, production sharing, profit sharing and service contracts. Similar to taxes, fees and royalties will apply to different contract types, except in the case of service contracts where contracted companies do not receive any profits from the hydrocarbon extraction project:
Licence contracts: contract signing bonus, royalties, exploration phase tax, and a compensation on the value of hydrocarbons
Profit sharing and production sharing contracts: royalties, exploration phase tax and a compensation on net operation profit
Royalty rates are determined on a sliding scale basis varying according to the type of field, its production level and the prevailing international price of oil and gas (similar to the hydrocarbon extraction fee under the assignment regime). Under this approach, royalties will go up if production or prices move above a certain threshold; the exact amount will only be published in the signed contract. Additionally, companies will also have to pay an exploration phase tax whose value is determined similar to the hydrocarbon exploration fee under the assignment regime. Profit sharing and product sharing contract will pay a compensation based on their net operational profits (the value of hydrocarbons extracted minus royalties and cost deductions) as defined in the signed contract. Licensors, on the other hand, will make payments based on the value of hydrocarbons they produce.
In order to encourage oil and gas production, the new regime will provide a royalty discount for shale gas. Under this regime, coast deductions will usually be capped at USD 6.50 for each barrel of oil produced at 12.5% of oil revenues for onshore and shallow water assignments. Furthermore, a cap of 60% will be observed on oil revenues from deep water production and the Chicontepe field, currently operated by Pemex. There will also be a cost deduction cap of 80% for revenues in the production of gas. Compared with the previous fiscal regime, foreign firms were only allowed to operate under service contracts monopolized by Pemex and in addition pay a corporate income tax plus 10 additional taxes. Among the changes, the new system will be much simpler allowing profits to be shared with foreign oil and gas companies.
Under this regime, the Mexican government estimates that Pemex can save 36% in tax and royalty payments annually, totalling to about MXP 90 billion. Furthermore, the government has proposed to assume one-third of Pemex’s social security contribution liabilities for its 15 000 employees, worth around USD 127 billion. However, before the government assumes this cost, the following conditions must be negotiated by Pemex with the Union of Petroleum workers: (i) raise the retirement age from 55 to 65 years; (ii) agree that the pension fund will be audited and; (iii) transfer the currently defined benefit plan to a defined contribution type on an individual basis.


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OECD (2018), OECD Companion to the Inventory of Support Measures for Fossil Fuels 2018, Paris.

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Nov-17

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Annual

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Units
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Mexican peso

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Indicator

PSE: Producer Support Estimate

GSSE: General Services Support Estimate

CSE: Consumer Support Estimate

Stage

EXTRACT: Extraction or mining stage

TRANS: Transportation of fossil fuels (e.g., through pipelines)

REFIN: Refining or processing stage

GENER: Use of fossil fuels in ectricity generation

INDUS: Use of fossil fuels in the industrial sector

END: Other end uses of fossil fuels

Statutory or Formal Incidence

consumption: Direct consumption

returns: Output Returns

income: Enterprise Income

inputs: Cost of Intermediate Inputs

labour: Labour

land: Land and natural resources

capital: Capital

knowledge: Knowledge

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Users of tax expenditure estimates should bear in mind that the Inventory records tax expenditures as estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax relative to a jurisdiction’s benchmark tax system, to the benefit of fossil fuels. Hence, (i) tax expenditure estimates could increase either because of greater concessions, relative to the benchmark tax treatment, or because of a raise in the benchmark itself; (ii) international comparison of tax expenditures could be misleading, due to country-specific benchmark tax treatments.

Fossil Fuel Support - MEXAbstract

MEXICO: GENERAL METADATA
Data documentation
General notes
The fiscal year in Mexico coincides with the calendar year.
Producer Support Estimate
Following the constitutional reform of the energy sector, the Mexican government signed a new fiscal regime for the oil and gas sector into law that will take effect on January 2015. The new regime is two-fold collecting a corporate income tax of 30% plus a set of taxes and fees varying depending on whether extraction and exploration is conducted as: (a) assignments (asignaciones) which are only granted to Pemex or a "state productive company" or (b) contracts signed with Pemex, either in association with private entities or with private entities entirely on their own.
Under the assignment regime, state-owned companies pay three different types of federal fees: (i) a shared profit fee, (ii) a hydrocarbons extraction fee and (iii) a hydrocarbon exploration fee. The shared profit fee applies to the value of extracted hydrocarbons during the corresponding fiscal year (including consumption of these by the assignment holder, spillage and flaring) minus deductions. The fee will initially amount to 70% in FY2015 and will be lowered to 65% by FY2019. Next, the hydrocarbons extraction fee is determined in a similar way to the royalty payments charged under the contractual regime with fees varying on a sliding scale depending on the type of hydrocarbon extracted and the prevailing international price. Finally, the hydrocarbon exploration fee, also known as surface rental fee, will be charged on a monthly basis depending on the surface area being explored. The fee is aimed at incentivising companies to fulfil their exploration plans within a specified time frame.
With respect to the contractual regime, there will be four different contract types: licence, production sharing, profit sharing and service contracts. Similar to taxes, fees and royalties will apply to different contract types, except in the case of service contracts where contracted companies do not receive any profits from the hydrocarbon extraction project:
Licence contracts: contract signing bonus, royalties, exploration phase tax, and a compensation on the value of hydrocarbons
Profit sharing and production sharing contracts: royalties, exploration phase tax and a compensation on net operation profit
Royalty rates are determined on a sliding scale basis varying according to the type of field, its production level and the prevailing international price of oil and gas (similar to the hydrocarbon extraction fee under the assignment regime). Under this approach, royalties will go up if production or prices move above a certain threshold; the exact amount will only be published in the signed contract. Additionally, companies will also have to pay an exploration phase tax whose value is determined similar to the hydrocarbon exploration fee under the assignment regime. Profit sharing and product sharing contract will pay a compensation based on their net operational profits (the value of hydrocarbons extracted minus royalties and cost deductions) as defined in the signed contract. Licensors, on the other hand, will make payments based on the value of hydrocarbons they produce.
In order to encourage oil and gas production, the new regime will provide a royalty discount for shale gas. Under this regime, coast deductions will usually be capped at USD 6.50 for each barrel of oil produced at 12.5% of oil revenues for onshore and shallow water assignments. Furthermore, a cap of 60% will be observed on oil revenues from deep water production and the Chicontepe field, currently operated by Pemex. There will also be a cost deduction cap of 80% for revenues in the production of gas. Compared with the previous fiscal regime, foreign firms were only allowed to operate under service contracts monopolized by Pemex and in addition pay a corporate income tax plus 10 additional taxes. Among the changes, the new system will be much simpler allowing profits to be shared with foreign oil and gas companies.
Under this regime, the Mexican government estimates that Pemex can save 36% in tax and royalty payments annually, totalling to about MXP 90 billion. Furthermore, the government has proposed to assume one-third of Pemex’s social security contribution liabilities for its 15 000 employees, worth around USD 127 billion. However, before the government assumes this cost, the following conditions must be negotiated by Pemex with the Union of Petroleum workers: (i) raise the retirement age from 55 to 65 years; (ii) agree that the pension fund will be audited and; (iii) transfer the currently defined benefit plan to a defined contribution type on an individual basis.


Country notehttp://stats.oecd.org/wbos/fileview2.aspx?IDFile=64068fb5-5343-4298-a30d-989fa37624d7Country sourceshttp://stats.oecd.org/wbos/fileview2.aspx?IDFile=ac07917b-bf55-4e50-a126-99049e35f7f2
Contact person/organisation

ffs.contact@oecd.orgffs.contact@oecd.orgName of collection/source

OECD (2018), OECD Companion to the Inventory of Support Measures for Fossil Fuels 2018, Paris.

Unit of measure used

Mexican peso

Power codeUnitsPeriodicity

Annual

Date last updated

Nov-17

Key statistical concept

Indicator

PSE: Producer Support Estimate

GSSE: General Services Support Estimate

CSE: Consumer Support Estimate

Stage

EXTRACT: Extraction or mining stage

TRANS: Transportation of fossil fuels (e.g., through pipelines)

REFIN: Refining or processing stage

GENER: Use of fossil fuels in ectricity generation

INDUS: Use of fossil fuels in the industrial sector

END: Other end uses of fossil fuels

Statutory or Formal Incidence

consumption: Direct consumption

returns: Output Returns

income: Enterprise Income

inputs: Cost of Intermediate Inputs

labour: Labour

land: Land and natural resources

capital: Capital

knowledge: Knowledge

Recommended uses and limitations

Users of tax expenditure estimates should bear in mind that the Inventory records tax expenditures as estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax relative to a jurisdiction’s benchmark tax system, to the benefit of fossil fuels. Hence, (i) tax expenditure estimates could increase either because of greater concessions, relative to the benchmark tax treatment, or because of a raise in the benchmark itself; (ii) international comparison of tax expenditures could be misleading, due to country-specific benchmark tax treatments.

Other comments

OECD Companion to the Inventory of Support Measures for Fossil Fuels 2018http://dx.doi.org/10.1787/9789264286061-en