“In the external market, expectations of lower economic growth in China are beginning to change the oil outlook for crude oil prices at the end of the year, meaning that there will be lower fuel prices, which will translate into a reduction in gasoline prices,” explained Arturo Carranza, director of Energy Projects at Akza Advisors.
But the elimination of subsidies by the Treasury, and its need to collect more revenue, will prevent this from happening in Mexico.
When the price of gasoline rises, the Treasury cuts the IEPS rate it charges on fuels. The goal is to avoid sharp increases in the final price, which represents less tax collection for the public administration, explained Ramses Pech, an industry analyst for Energy and Economy at Caraiva y Asociados-León & Pech Architects.
But when prices fall, the Treasury raises this fee to its maximum amount, which prevents distributors from buying cheaper fuel but prevents final prices from falling. This situation represents a higher tax collection for the public coffers, adds Pech.
This can be seen in the Treasury’s revenue. From January to July, it collected 232,207 million pesos from the federal IEPS on fuels, which represented an increase of 92% compared to the same period last year.
But while revenues are increasing, users are enjoying fewer subsidies, meaning we pay more in taxes on gasoline. So far this year, Premium has not enjoyed a fiscal stimulus, while for diesel and Magna they have been very small and detrimental, if we compare them with the subsidies granted last year.
Experts expect the elimination and reduction of subsidies to continue at the end of the year, specifically due to the need to generate more income, with the aim of reducing the fiscal deficit, which is under the eye of the credit rating agencies.
“The current fiscal plan is the IEPS, the reduction (of fiscal support) often has to do with the low cost at which I as a country acquire fuel, and the margin that this gives me, to charge a little more IEPS; it seems to me that it is part of the plan to reverse the fiscal deficit,” said Rolando Silva, vice president of fiscal at the Mexican Institute of Public Accountants (IMCP).
