Digital Taxes Begin; Experts Warn of Excessive Regulation

The day has come. Starting today, the digital tax in Mexico will become a living reality for digital platform users.

After companies like Netflix in Mexico began to charge the digital tax to users in early May, Manager of Digital Commerce and International Organizations of the Latin American Internet Association (ALAI) Sissi De La Peña, said that excessive regulation of tech companies could affect the digital economy by inhibiting innovation and new developments.

"The digital economy tries to find alternative solutions to problems that we do not have at the moment and excessive regulation in all cases can inhibit this development of new services. All countries and companies have been in an extensive collaborative development with the OECD, which expects to have results by the end of 2020 with something much more specific on audit issues," said De La Peña at the 11th edition of the Escuela del Sur Internet Governance.

On May 7, Netflix and Nintendo announced the price of their subscriptions would increase in June due to the consumption tax that legislators approved in 2019 for digital services. "As reported in late 2019, the Mexican government is adding VAT to digital services such as Netflix as of June 1. Consequently, we have started to notify our users that there will be an adjustment in our prices. At the same time, we have worked to minimize our impact on the basic plan. Members will see this tax as a separate item on their bill starting on June 1," a Netflix spokesperson said in a statement.

The Huge Dilemma on How to Tax Big Techs

For decades, if an international company established itself abroad, the government has had the right to tax them. However, when the internet came along, controlling companies offering services and products through this channel became more difficult. Then the dilemma arose of how to collect taxes from large technology companies since, like others, they make profits from the population in the countries they operate.

On May 4, French Minister of Finance Bruno Le Maire took up the issue and called for a European tax on digital companies. Faced with the crisis unleashed by COVID-19, the assessment is more relevant than ever. “This crisis shows that the digital giants are doing best, simply because they are able to keep their businesses going. And yet, they are the least taxed,” said Le Maire at a Linkedin Live event.

According to analysts, the measure applied in Mexico is a very big step to inspect digital companies that avoid taxes and which are very difficult to tax.