Mexican authorities are on the cusp of rolling out an automatic tax withholding system that helps them crack down on tax evasion.
Uber is first in line to participate, according to a person familiar with the negotiations.
For Mexico, it’s a big get. The country has been looking for ways to boost tax collection that’s the worst among members of the Organization for Economic Cooperation and Development, a result of an economy that remains largely under the table.
Uber is a key ally — it dominates more than 80 percent of the ride-share market in Mexico, according to Dalia Research.
The program may be expanded to include rentals. Airbnb was expected to take part, but reportedly backed out at the last minute. If the program becomes law, no exceptions are expected.
For Uber, the once-combative tech giant, it’s a test to a new strategy of offering more gestures of cooperation to governments, according to Bloomberg.
The pilot program will be geared towards ride-hailing and food delivery services, both of which Uber provides, and will allow it to withhold taxes from users who gain income from it.
The plan is set to launch next week after a year of discussions, with Uber expected to officially join in early 2019. The program doesn’t create a new tax, but will collect what drivers should already be reporting and paying monthly.
The tech firm will withhold an 8 percent VAT plus an income tax of up to 9 percent that will vary depending on the number of rides drivers complete each month, according to documents seen by Bloomberg News.
The Mexican government is betting that automatically withholding taxes will sit well with drivers. Instead of monthly filings, they’ll only have to file taxes once a year. But the voluntary nature of the program opens the door for drivers to keep evading taxes by switching to companies that decline to opt-in. Spanish Cabify and Didi Chuxing, the Chinese giant that acquired Uber’s assets in the Asian country in 2016, did not respond to requests for comment on whether they’d also join the tax program.
In Mexico — one of its biggest markets globally, behind only the U.S. and Brazil — the agreement does not change or jeopardize drivers’ employee status since the Mexican law allows for fiscal retention without an employer relationship.
“We reiterate our willingness to collaborate with government institutions,” Uber said in a statement. “We will work together with the Mexican tax authorities to boost shared economy and grow self-employment opportunities in the country.”