Mexico will tax digital economy
In recent years, fintech and digital economy have grown in Mexico - Photo: Dado Ruvic/REUTERS

Mexico will tax digital economy

Mexico City
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This is an opportunity to establish the foundation of a regulation that will transcend tax collection

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In recent years, technological developments have been accompanied by a new way of doing business: digital economy. In order to create a company, it is no longer necessary to have large facilities, instead, companies now only need a fast internet connection and a large capacity to store information. Transactions can be carried out using a smartphone, in any part of the world.

In different parts of the world, governments have started to establish regulations and taxes for digital economy, although the issue has been the subjects of intense discussions.

In Mexico, authorities are discussing several initiatives to tax digital economy, starting in April 2020. The companies affected have asked for 12 months before they start paying taxes and also asked lawmakers to soften the sanctions included in the new laws.

Last week, the Organisation for Economic Co-operation and Development (OECD) announced that it is working on a proposal in regards to tax law applied to digital economy will be based on the principle that large companies should pay taxes wherever their users are, no matter where their tax domicile is located.

In Latin America, the Cepal has also suggested taxing the services offered by digital companies. In its report “2019 Fiscal Outlook in Latin America and the Caribbean,” the organization says that for Mexico, implementing these new taxes would translate into a potential value-added tax (IVA) collection for up to USD $177 million every year, if companies such as Uber, Spotify, Netflix, and Apple pay this tax.

In order to prevent drastic laws that could affect the digital sector, lawmakers and companies should discuss the initiative and reach agreements. It is obvious that companies will propose measures that affect them the least but this wouldn't have to rule out dialogue.

Also, this scenario should be used as an opportunity to go beyond taxing powerful digital consortiums. In Mexico, there are small and medium technology enterprises, that on the contrary, could be granted fiscal incentives to fuel their development.

Congress should identify this moment as an opportunity to establish the foundation of a regulation that will transcend tax collection.


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