Mexico tax plan for Uber creates friction among ride hailing firms

MEXICO CITY (Reuters) - Mexico on Monday detailed plans to withhold tax from drivers for ride-hailing and food delivery firms such as Uber Technologies Inc and Rappi, but China’s Didi said it would not take part in the arrangement, sparking friction within the industry.

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Mexico’s government has vowed not to create new taxes. But it is looking for other ways to increase income, arguing that public revenues have been low relative to other nations in the region.

The monthly value-added tax (VAT) withholding rate will be 8% and the income tax rate will range from 3% to 9% once the measures are implemented on June 1, Uber said.

“With this new scheme, Uber will be able to calculate, withhold and pay directly to the Mexican tax authorities the amount of income tax and VAT that its drivers and delivery drivers owe every month,” Uber said in a statement.

In theory, the program will not change drivers’ employment status, a key issue for Uber since Mexican law allows for retention of taxes without an employment relationship. So far, drivers have had to declare their own taxes in Mexico.

Uber has mostly successfully beaten back attempts around the world to make it treat drivers as employees, arguing that its main business is a platform that brings riders and drivers together.

Other than Uber, companies that have agreed to the new tax program include Cabify, Bolt, Beat, Cornershop, Rappi, SinDelantal and Uber Eats, the Finance Ministry said.

Didi had been expected to participate in the program but withdrew late last week, according to a person with knowledge of the matter.

The Chinese firm said in a statement that it would not join the voluntary program but would analyze participating in the future once it understood the implications for its drivers. Didi said it was in “full compliance” with current regulations in Mexico.

News that Didi was opting out drew criticism, with Cabify suggesting it could distort the market.

“If this voluntary program is to achieve its goal, all the actors need to collaborate,” said Ramon Escobar, Cabify’s director in Mexico. “If some company is not participating, it could have a significant impact.”

The Mexican finance ministry said the program, which had been anticipated, “does not represent new or additional taxes, its objective is to simplify compliance with tax obligations.”

Earlier on Monday, President Andres Manuel Lopez Obrador said he was planning to end a practice of debt forgiveness for large companies that he called “white collar theft” and estimated had cost the treasury $20 billion in the past 12 years.

Writing by Anthony Esposito; Editing by Frank Jack Daniel, Rosalba O’Brien and Dan Grebler