Mexico eyes sales tax on digital businesses to boost revenue

MEXICO CITY (Reuters) - Mexico is in talks to extend a sales tax to foreign online businesses so that they pay their fair share to Latin America’s second biggest economy, the government said on Monday, in a move that could affect companies like Inc, Uber Technologies Inc and Airbnb Inc.

FILE PHOTO: Arturo Herrera, Mexico's new Finance Minister, reacts during a news conference in Mexico City, Mexico July 9, 2019. REUTERS/Carlos Jasso

Mexico has been exploring taxing online purchases to help plug a major revenue gap after changes in the way state oil company Petroleos Mexicanos, or Pemex, contributes to government coffers. Efforts to improve Mexico’s poor tax collection have broad political support.

“We’re already reaching agreements with them (the digital platforms),” Finance Minister Arturo Herrera told a regular news conference, explaining that the government was looking at how to withhold Mexico’s sales tax from the companies.

He did not name the companies engaged in the talks.

Amazon and Uber declined to comment. Video streaming service Netflix Inc and home rentals company Airbnb did not immediately respond to requests for comment.

Mexico’s 2020 draft budget, which Herrera was discussing, states that digital platforms could have their connections cut if they do not register with local tax authorities.

Mexico’s overall tax take is the lowest in the 36-nation Organisation for Economic Co-operation and Development (OECD). In 2017, it stood at 16.2% as a proportion of gross domestic product (GDP), less than half the OECD average.

Opposition lawmaker Patricia Terrazas, a member of the center-right National Action Party who heads the finance committee in the lower house of Congress, backed the digital tax drive, and said the key was to ensure there were no loopholes.

The rapid growth of digital platforms in Mexico made it imperative to agree on a tax structure, Herrera said, noting that the sector accounted for around 5% of the economy.

“We’re going to see how much we can bring in, it’ll be several billion pesos,” Herrera said.

Reporting by Stefanie Eschenbacher, Dave Graham, Julia Love and Daina Beth Solomon; Editing by Kevin Liffey and Richard Chang