File No. 812.512/1218

Special Representative Rodgers to the Secretary of State

No. 57

Sir: I have the honor to state that for the last month I have been making inquiries into the matter of the prospective amendment of the taxation upon oil production in Mexico. I was advised some weeks ago by the Secretary of the Treasury, Mr. Luis Cabrera, that careful consideration was being given the subject but that no action would be taken until the mining tax question, and that of the issuance of the new money, were out of the way.

Having been advised previously that agents of the Treasury and the Department of Agriculture had gone to Tampico for the purpose of making further study of the general matter, and also being aware of the fact that the Government of the State of Vera Cruz is beginning to act in a way which would suggest some aggression to this very important interest. I, yesterday, reopened the oil taxation [Page 764] question with the Secretary and ascertained from him that the new system under contemplation is simply that of ad valorem taxation, the values to be determined only by current market quotations at home and abroad. Mr. Cabrera stated to me that there would, of course, be chemical analyses to aid in the determination of value, but that the general idea of the proposed system would be quality and value taxation rather than that based on quantity, as heretofore. Furthermore, the new process will assign to the Federal Government a much larger proportion of the general revenue derived from oil production than formerly, the intent being to acquire more Federal revenue and to establish the principle that oil production is a matter for National rather than State taxation. Generally, it was stated, the National Government proposed to assume over the oil fields a control in the matter of taxation on production similar to that which will obtain as to mining.

The Secretary asserted that the ad valorem taxation plan would not create a heavy additional burden on oil production, and would equalize taxation to the producers. The present revenue derived from oil taxation, in round numbers is about $2,000,000.00 American gold per annum. It is thought that under the new system that will be increased to $3,000,000.00.

I was assured that I would be given an opportunity to discuss the new taxation system with the Secretary of the Treasury and that he would be glad to consider any representations on the subject which I would present.

It is certain that there will be opposition to the plan from all national interests concerned, and that a vigorous effort will be made to limit the increased taxation. But the principal opposition will come from those who have been exploiting oil properties which have no production as yet, since, coupled with the new decree, will doubtless come requirements, both National and State, as to the more complete disclosure of all such operations and the registration of the properties. This will be essentially in the nature of a Mexican application of the so-called blue sky laws of some of the American States. From such observation as I have been able to make on this feature of the general question, it would appear to me that it is full time that there should be such restraint in Mexico.

I have [etc.]

James L. Rodgers