Netflix Passes Tax of Up to 16% To Mexican Viewers Stuck at Home

(Bloomberg) -- As Netflix Inc. thrives amid coronavirus lockdowns, the company is passing along the cost of a new digital tax to Mexican users who are hunkered down to avoid contagion.

The streaming service will charge a 16% value-added tax ordered by the government starting June to its standard and premium users. The company said it will absorb half of the tax for subscribers of its basic plan.

Digital platforms that once flew below Mexican tax authorities’ radar are turning out to be the latest tool for the nation to boost revenue as the economy is expected to contract 7.5% and oil exports plunge. When the plan to collect was announced, experts wondered if a 16% tax was too high for companies to pass along to consumers, but, at least in Mexico, the company may be betting that viewers staying indoors won’t cancel subscriptions.

“The Mexican government is adding VAT to digital services like Netflix from June 1,” the company said in a statement. “We have started notifying our members that we will adjust our prices accordingly, while also working to minimize the impact on our basic plan.”

The streaming service added 15.8 million customers worldwide in the first quarter of the year, a record. While the S&P 500 is down 11% this year, Netflix is up 35%.

In its 2020 budget proposal, the Mexican government aimed at having companies like Netflix and Airbnb Inc. collect VAT from their users and remit them to tax authorities.

The tax is not new, and it’s what companies providing a service should already be collecting, the government has said. Mexico’s taxation levels are the lowest among OECD members.

©2020 Bloomberg L.P.