After several days of debate and much controversy about the benefits and effects that a decision of this type could bring to users and companies in the Mexican market, the Senate of the Republic has made official blocking digital applications and services that do not pay VAT.

Experts on the subject have assured that this would be dangerous for the digitization of the country.

Sissi de la Peña, manager of Digital Commerce and International Organizations of the Latin American Internet Agency, mentioned for the Financial that this measure threatens the digitization of companies and SMEs, and that it is an attempt against the development of the Mexican economy at a time of economic and health crisis; it is putting barriers to innovation and economic development.

On the other hand, Alberto Pardo, CEO and founder of Adsmovil also mentioned to the financial sector that those most affected by this type of decision are the users, as they will end up paying all these financial taxes.

The Senate has detailed that the blocking of an application or service will be effective when they are not registered with the Federal Taxpayers Registry and a legal representative and an address in Mexico are not designated. Also when your advanced electronic signature is not processed, or when you omit the entire tax payment for digital services or the presentation of monthly informative returns for 3 consecutive months or 2 consecutive quarterly periods.

Taxes that put the smallest entrepreneurs at risk

The problem for many experts is that smaller entrepreneurs and developers can find themselves in trouble keeping their business in a market that will force them to do two things; absorb the costs of VAT, or increase the price of their services in order to pay this tax. The first case is very difficult for smaller companies to achieve, which could force them to use traditional commerce services.

If we look at the list of companies that are already registered with the SAT for tax payment, we see technological titans such as Uber, Spotify, Netflix, Microsoft, Roku, Didi, LinkedIn, Apple, Facebook, HBO, Zoom, Claro Video and more. In addition, we must remember that most of these companies raised the price of their services in order not to absorb VAT, thus reinforcing the idea that those most affected by this decision will be the services of small entrepreneurs.

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What about foreign developers who sell through other platforms?

The Senate explained that those developers or companies that sell their services through platforms such as the Play Store, App Store or any electronic commerce store in Mexico will not have to travel to Mexico to register their operations and pay VAT, but they will have to the stores will have to make the withholdings and they will have to make the report to the SAT.

On the other hand, services that are blocked due to irregularities with the payment of taxes, and that still do not respect the decision, will be sanctioned with an economic sum of half to a million pesos for each month that the blocking order is not followed.

The SAT will also be obliged to report all blocked services for user information.