Mexican President Claudia Sheinbaum is licensed under Creative Commons.
The Mexican Government’s recently released tax reform proposal “Paquete Económico 2026”, under the guise of fiscal responsibility, broadly expands Mexico’s indirect tax policies to disproportionately harm American companies. These taxes would place a heavy burden on American digital service providers operating in Mexico due to their high rates and unreasonable compliance requirements, many of which discriminatorily target foreign companies with additional conditions to continue operating in Mexican markets.
The proposal is intended to expand Mexico’s tax base to encompass the digital economy. To accomplish this, the proposal aims to enact three key changes: expanding private market responsibilities to withhold value-added tax (VAT), additional withholding requirements on income, and an 8% excise tax on “violent” video games. Combined, these policies stand to shift the burden of tax administration onto the private sector while raising the cost of digital transactions.
The wording of the legislation was explicitly designed to disproportionately burden American companies. The proposal will require digital marketplaces to withhold 50% of the VAT collected from online sales and 4% of the associated income tax, unless the seller is from abroad or does not have a Mexican tax code. In that case companies must withhold 100% of the VAT and 20% of the income tax, effectively outsourcing government tax collection to private companies. With the majority of foreign sellers using American platforms, companies like Amazon are expected to be disproportionately burdened by these changes.
Additionally, the proposed 8% excise tax on video games uses a long-debunked justification that attempts to link video games to real world harms to target American companies. By claiming the negative effects of video games, Mexico is attempting to raise its revenues off of digital services. Included in the law is an assumption that 70% of the content libraries of subscription services that offer games such as Xbox Game Pass, Netflix Mobile Games, and Apple Arcade are taxable, again expecting these platforms shoulder 100% of the collection burden while doing no diligence to properly confirm the proportion of their libraries eligible for the tax.
What started as a tax on games has turned into a full-scale digital service tax, such as those across the EU. While mirroring those of other trading partners, Mexico’s goes even further to discriminatorily target businesses.
The majority of digital marketplaces and service providers are American. The proportion of foreign sellers using these American platforms is even higher. This means American companies, with a higher portion of foreign sellers, are more impacted by the Mexican government’s discriminatory distinction between withholding responsibilities for domestic and foreign sellers. In effect, this policy raises the cost of American products while burdening American companies, meanwhile leaving those in Mexico relatively unaffected.
Mexico’s thinly veiled attempt to implement a digital service tax must not go unopposed. Digital service taxes act as discriminatory, non-tariff barriers, targeting sectors American tech companies operate in with large levies and unreasonable compliance responsibilities. For the sake of reciprocal trade and fair competition, such policies conflict with the USMCA’s nondiscrimination principles, undermining the North American trade relationship.
