Lower House Approves Pemex Tax Reform

Mexico's lower house approved on Thursday the reform of state oil company Pemex's fiscal regime.

The measure was approved by 437 votes in favor, zero opposed and five abstentions, a source in the lower house told BNamericas.

The reform proposal, which was approved by the lower house's finance committee Wednesday, aims to cut the taxes Pemex pays on extracted hydrocarbons to 74% in 2008 from 79%. The tax rate would be further reduced an annual 0.5% from 2009-11 and 1% in 2012.

But in order to receive the tax reductions, Pemex and its subsidiaries would need to carry out a program to improve operating efficiency to international standards.

The program would need to be sent to the lower house for approval by June 30, 2008.

The tax reduction would free up 30bn pesos (US$2.70bn) for Pemex in its first year, and 50bn-60bn pesos after 3-4 years.

Pemex would be obliged to direct the additional resources toward investment as well as research and modernization projects as opposed to existing expenses.

It is estimated that the reform will enable the country to increase the current oil production target by 200,000b/d.

The original model of the Pemex fiscal reform, proposed by the opposition PRI, PRD, Convergencia, PVEM and PT parties, called for a one-time cut in taxes on the value of oil and gas production from 79% to 70%.

However, the ruling PAN party suggested taxes should be lowered gradually in accordance with productivity and efficiency improvements and in line with the national fiscal reform.

The reform will now be sent to the senate where, if rejected, it would be returned to the lower house. If approved by the senate, it would be sent to President Felipe Calderón to be signed into law.

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