The Complexity of Transportation Finance in Mexico City

Mexico has a unique history when it comes to transportation finance. As the 6^th largest crude oil producer in the world, Mexico’s relationship to gasoline is complicated. The state-owned gasoline monopoly, Pemex, controls all pricing of fossil fuel, which includes subsidizing the purchase of refined gas. Looking at Mexico City, the capital of the country, we discover a complex and confusing taxing system that promotes car use through gas subsidies, free parking and little to no government transparency. Recently, things have begun to change throughout the state, causing drastic improvements to congestion, carbon emission and transit use.

One of the many round intersections in Mexico City 

Unlike the United States and Europe, Mexico does not place a tax on its fuel, but rather, subsidizes it. According to The Economist, in 2010, Mexico was the only county in the Organization for Economic Co-operation and Development (OECD) that did not impose a fuel tax on its consumers.(1) Since no funds are being collected from the physical sale of a gallon of gas to consumers, transportation revenue is collected in different ways.

In 2004, Christopher Zegras, an Associate Professor at MIT, reported that Mexico received most of its transportation finance from a Value Added Tax and an Excise Tax on Products and Services on Gasoline and Diesel (IEPS). These taxes accounted for 50-65% of federal transport revenue. The IEPS tax is not considered a road user fee because it is not distributed accordingly to states that collect them and is seen as a “hidden” fee from consumers. (2)

In addition to IEPS, a New Vehicle Sales Tax (ISAN) is collected for transit revenue. Although the ISAN would be considered a state-level tax, it is actually collected federally, and ownership of the tax is unclear. According to Mr. Zegas, Mexico City brought in roughly US$1 billion from the ISAN and IEPS taxes in 2004. The transit net expenditures, which include the Metro, light rail/trolley and buses, add up to between US$720-810 million.

Other sources of transportation financing include toll prices collected on intercity limited-access tolled freeways, or autopistas. The highway network is the biggest in the Americas, outside the US. Toll rates are usually high because they are used to construct and maintain the roadways. In Mexico City, the largest of the autopistas, Arco Norte, spans 223 km passing through four states and allows travelers to bypass the city. (3)

In 2009, the Mexican government created the Public Transportation Federal Support Program (PROTRAM) that provided funding to cities to study and construct public transportation projects. This was the first federally funded project in Mexico for public transit. One of the recipient cities of the PROTRAM was Mexico City. They received funding for their Metrobus BRT system, which opened in 2012. (4)

In 2012, the House of Representatives called for climate change legislation that would reduce carbon emission by 30% by 2020. The fuel subsidies that have been in place for decades are gradually being phased-out by 2013, and the government is preparing a broad tax reform bill that could include “green taxes” like higher fuel taxes or transport subsidies. (5)

Citizens protesting against the removal of fuel subsidies in Mexico City 

-- Brenda Martin and Michael Armstrong

 Footnotes: 

1) The Economist: http://www.economist.com/node/17101124

2) C. Zegas: http://web.mit.edu/czegras/www/Zegras%20Mexico%20Transport%20Finance.pdf

3) Genetec: http://www.genetec.com/Publications/casestudies/Pages/arco-norte.aspx

4) Embarq: http://www.embarq.org/en/project/protram-transit-funding

5) Global Issues: http://www.globalissues.org/news/2013/03/14/16088