Growing challenge: Fiscal fuel theft affects fuel industry in Mexico

The illegal importation of fuels, also known as "fiscal huachicol," has become a growing challenge for the gasoline sales and distribution industry in Mexico. This phenomenon, which involves bringing fuels into the country under a different tariff code to evade taxes, has generated unfair competition that affects legally established entrepreneurs in the market. During the tumultuous year of 2020, marked by the coronavirus pandemic and turmoil in the energy market, international prices for gasoline and diesel reached record lows. This scenario led to the emergence of a parallel market offering significantly lower prices than the formal market, attracting a significant portion of fuel demand. The Tax Administration Service (SAT) reports that in 2021, approximately 66.7 million barrels of fuels were illegally brought into the country, representing around 14% of the total gasoline and diesel demand. This practice has caused significant financial losses for the government, estimated at 58,000 million pesos in terms of revenue from the Special Tax on Production and Services (IEPS). The strategy used by groups engaged in fiscal huachicol has been to import fuels under the guise of automotive oils, lubricants, or alcohols, thus avoiding tariff payments and offering more attractive prices to marketers and service station operators. This illegal activity has grown in recent years, accounting for around 21% of the total fuels consumed in the country in 2021. The correlation between government fuel subsidies and the increase or decrease in illegal imports is evident. When tax reductions are applied, illegal imports decrease, but when taxes are increased, illegal activity is encouraged. The recent Russian invasion of Ukraine led to a global increase in fuel prices, prompting the Mexican government to subsidize retail prices for gasoline and diesel. This measure discouraged illegal imports, as internal prices with subsidies were more attractive than those in the import market. Another concerning aspect is the use of automotive lubricants as a means to illegally introduce hydrocarbons into the country. These products are not subject to IEPS payments and are used to evade taxes, creating unfair competition in the fuel market. Sector entrepreneurs claim that gasoline or diesel purchased in this parallel market can be up to 5 pesos cheaper than the legal price. In this context, it is essential for authorities to strengthen control and surveillance measures at customs to combat fiscal huachicol and protect the legality and competitiveness of the fuel industry in Mexico. Transparency and effective law enforcement are key to eradicating this illegal practice that jeopardizes an entire economic sector vital to the country.