Mexico will eliminate the value added tax (VAT) on gasoline and diesel at its northern border beginning 1 January, the minister of economy Gabriela Marquez said late last week.
The move is designed to attract investment to cities within 20 km (12.4 miles) of the US border by closing the gap between Mexican fuel prices and those on the US side.
Citizens and companies in Mexico's northern zone often cross to the US to buy fuel. By eliminating gasoline from the 16pc VAT on all consumer goods the government hopes to keep the purchases closer to home.
The average price for regular gasoline nationwide is close to Ps19.90/l ($3.73/USG), making the value-added tax close to Ps0.32/l. But US regular gasoline prices in southern cities are much less, at $1.60/USG in Los Angeles on 21 December according to Argus assessments.
Reducing VAT in fuel prices at the border will cost the government close to Ps19.6bn ($985mn) according to the finance ministry.
Mexico eliminated all fuel price caps in November 2017 as part of the energy reform enacted in 2014. The Mexican government still has some form of control over its fuel prices as state-run Pemex supplies most of the fuel demand. It also controls the fuel excise tax (IEPS) that varies weekly to avoid abrupt price changes.
