New taxes for selling on marketplaces like Mercado Libre in Mexico

Contxto – You know what’s taxing to e-commerce giant Mercado Libre in Mexico? Taxes on its individual vendors.

This new fiscal regulation became effective as of last Monday (1), wherein mainly individual vendors may have to raise their prices or adjust their operations to stay afloat.

It’s a tax attack… with some rather questionable timing.

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Taxing breakdown on marketplaces

Here are the biggest fiscal changes for marketplaces and their vendors in Mexico.

Amounts withheld per sale:

• IVA=VAT
• ISR= Sales Tax
• The first column is for those registered before Mexico’s tax authority
• The second is for those not registered.

In short, the Mexican government is really honing in on e-businesses as a source of additional revenue. Not to mention giving a severe wrist slap to those who run an informal operation.

• Related article: Why Mercado Libre & Despegar are destined to opposite fates

Mercado Libre versus taxes

Mercado Libre really fought on this tax hike and had even advocated that it be postponed until next year. It also wanted a different fiscal regime where it wasn’t forced to withhold taxes for sales volumes. But, it wasn’t to be.

When it comes to individual vendors, the problem is this fiscal model retains the total of the transaction instead of their profits. Which means their cashflow is temporarily severed because Mercado Libre withholds a part of the costs it took to make or obtain the product they’re selling. 

They eventually get that money back when they do their monthly taxes. But it still severs their ability to buy supplies, restock, etc.

All of this may affect online shoppers, as sellers choose to raise their prices to manage.

Weird isn’t it? E-commerce is being pushed by Covid-19 and now taxes are making it an unattractive option.

At the end of the day, it may become a matter of consumers choosing whether they want the convenience of pricier on-demand shopping versus going to the store.

Likewise, vendors may consider raising prices, becoming formal businesses so as to not be taxed over their transactions, or finding a way to manage their operations with a lower flow of cash.

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-ML