Natural Resource Taxation in Mexico: Some Considerations

IMF Working Papers, October 18, 2021

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Mexico has large extractive industries and it traditionally has raised sizable fiscal revenues from the oil and gas sector.
A confluence of factors—elevated commodity prices, financial challenges of the state-owned oil company Pemex, and revenue needs for financing social and public investment spending over the medium term—suggest that a review of Mexico’s taxation regimes for natural resources would be opportune.
The paper places tax-reform discussion “against the backdrop of a comprehensive approach to tackling Mexico’s challenges.”

The paper identifies opportunities for redesigning mining taxation to increase somewhat the revenue intake while maintaining the favorable investment profile of the sector.
It discusses recent reforms to the oil and gas fiscal regime and future reform considerations, with attention to the attractiveness of investment on commercial terms.
The attractiveness of investment on commercial terms should be placed in the context of an overall reform of Pemex’s business strategy and possibly of the energy sector more generally.

Reform objective: increase somewhat the revenue intake from mining taxation while maintaining the sector’s favorable investment profile.
Emphasis on designing changes that preserve commercial attractiveness to investors.

The paper reviews recent reforms to the oil and gas fiscal regime.
Future reform considerations emphasize ensuring attractiveness of investment on commercial terms.
Reforms and investment attractiveness should be evaluated in the context of Pemex’s financial challenges and broader energy-sector reform.

Any review of natural-resource taxation should be part of a comprehensive approach to Mexico’s fiscal and sectoral challenges.
Tax-design choices should balance revenue objectives with maintaining a favorable investment profile in the extractive sectors.
Consideration of oil and gas taxation reforms should be integrated with reforms to Pemex’s business strategy and potentially broader energy-sector reforms.

Alpa Shah, Natural Resource Taxation in Mexico: Some Considerations, IMF Working Paper No. 2021/245, October 18, 2021.