1684061546 Mexico reduces gasoline subsidies to a minimum

Mexico reduces gasoline subsidies to a minimum

A man fills a container with fuel at a gas station in the city of León, Guanajuato state.A man fills a container with fuel at a gas station in the city of León, Guanajuato state.picture Alliance (via Getty Images)

López Obrador’s government has further locked the key to gasoline subsidies. Although the Treasury has disbursed some 400,000 million pesos to stem fuel price increases in 2022, the Treasury is now trying to recover from those fiscal costs and has gradually trimmed those stimulus. From May 13th to 19th, the Mexican authorities reset premium gasoline subsidies to zero, while the diesel incentive will drop from 3.71% to 2.65%. The tax credit for regular gasoline (less than 91 octane) will be 19.43%, down from last week’s 21.65%.

As a result, motorists will pay 4.76 pesos in tax per liter of regular gasoline starting this Saturday, up from the 4.63 pesos set for this week. For diesel, the tax burden will rise from 6.26 pesos to 6.33 pesos per liter, while premium gasoline has a rate of 4.99 pesos per liter, according to figures published in the Federation Gazette, the same level as last week lies (DOF).

In March 2022, with inflation soaring and international oil prices above US$130 a barrel, López Obrador’s government opted not to levy the Special Tax on Production and Services (IEPS) – a tax charged on production, paid for the sale or import of petrol – to contain petrol prices. The central government’s goal at the time was to prevent a further increase in prices at all costs through a sudden increase in fuel prices, better known as gasoline zozo. As pressure on crude oil prices has eased, the Treasury has lowered the bar on fiscal support.

The reduction in fuel tax subsidies to a minimum coincides with the fall in oil prices and the slowdown in inflation in the country. The Mexican mix is ​​currently trading at $63 a barrel, a significant drop from the more than $100 it was selling for in May 2022. Undersecretary for Finance Gabriel Yorio told EL PAÍS in a previous interview that this year the subsidies would be maintained as long as the price of gasoline was above the anchor price, although he had already foreseen that the support would not be as dramatic as in 2022. Crude oil prices are well below last year’s $100 a barrel in parallel with a lower level of inflation: in April, price increases in Mexico closed at 6.25%, the lowest level since October 2021.

As stimulus has been cut, tax revenue from the IEPS has increased: In the first quarter of this year, collection of the IEPS from gasoline and diesel was 29,840 million pesos, up 33% compared to the first quarter of 2022, according to the Treasury Department. “On the one hand, there has been a decline in oil revenues due to the annual decline in hydrocarbon prices as well as the peso’s appreciation against the dollar. On the other hand, the federal collection of the IEPS, derived from the decline in fuel price incentives, was in positive territory for the fourth consecutive month in the first quarter of 2023,” the agency said in writing.

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