Taxing Mexico

Mexico’s 2026 fiscal reform package included a hike in the tax rate on gross gaming revenue from 30 percent to 50 percent, one of the highest rates in the world. The increase was a blow to the market, which has grown steadily in recent years; in 2024, Mexico ranked as H2 Gambling Capital’s 18th largest market worldwide, with gross win of $5.68 billion.

While the tax rise is significant, industry voices are keen to stress that it won’t prove fatal to Mexico’s gambling sector.

One such voice is Miguel Ángel Ochoa Sánchez, president of the AIEJA (Asociación de Permisionarios, Operadores y Proveedores de la Industria del Entretenimiento y Juegos de Apuesta). He says the upcoming World Cup soccer tournament, to be co-hosted by Mexico, is reason for optimism.

“There is no doubt that the increase in the Special Tax on Production and Services (IEPS), which came into effect on January 1, was a blow to companies in the sector legally established in our country,” says Ochoa. “However, the market continues to grow rapidly, and the outlook remains very positive. With the arrival of the 2026 World Cup, projections indicate a substantial increase not only in the volume of bettors but also in player retention in the medium term. Therefore, I would put into perspective the impact of this tax increase on the momentum of the online sector.”

Alfredo Lazcano and Andrea Avedillo Builla, of the Mexican law firm Lazcano Sámano, agree that the impact of the tax rise shouldn’t be “overplayed,” and say there may be some legal options for operators.

“There are legal mechanisms available, such as constitutional challenges (amparo proceedings), that may allow operators to contest the increase and potentially reopen dialogue with the authorities,” they say.

But Mexico is still an attractive market for operators, with its huge population (around 134 million people) and its proximity to the U.S., which makes it a key audience for giant American sporting events such as the Super Bowl.

“In light of these factors, while the higher IEPS rate may increase operational costs in some cases, it is unlikely to materially undermine Mexico’s competitiveness,” Lazcano and Avedillo Builla explain.

“The country’s scale, market maturity and commercial potential continue to outweigh the impact of the tax increase, positioning it as one of the most attractive markets in the region.”

Will Operators Pull Out?

That optimism is backed up by the data, with H2 Gambling Capital Managing Director Ed Birkin saying the market is on track for 20 percent growth in 2025.

Birkin doesn’t expect operators to leave Mexico, though the tax rise makes it less attractive on a return-on-investment basis. He suggests marketing could be cut, as is often the case as operators look to lessen the financial impact of tax rises.

But Ochoa and the Lazcano Sámano team do see a risk that smaller operators could be forced out of the market, with the tax rise especially impactful for local heroes without the financial backing of their international competitors.

“Increased tax and regulatory pressures tend to disproportionately affect smaller operators,” say Lazcano and Avedillo Builla, “as they typically have less capacity to absorb higher costs or adapt their operating models compared to larger, more established players. This can accelerate market consolidation, where scale becomes a key advantage for maintaining profitability under more demanding conditions.

“As a result, while the intention behind

such measures may be to strengthen the market, in our professional experience we have seen that they can inadvertently reduce competition if smaller operators are unable to sustain their operations.”

Mexico’s Outdated Regulations

The wider context of the tax rise in Mexico also needs to be considered, with the market operating under an outdated regulatory framework in dire need of modernization.

Regulatory reform was expected this year ahead of the World Cup, but that timeline now looks increasingly unlikely.

According to Lazcano and Avedillo Builla, the market is also being held back not only by outdated regulation, but also weak engagement by the regulator.

“While the Mexican gambling market has shown sustained growth over the years, those of us working on the development of this jurisdiction know that Mexico still has a long way to go before it can be truly considered a ‘thriving’ market,” they say.

“It continues to operate under an outdated regulatory framework that, in many respects, constrains its ability to expand and mature. In addition, over the last couple of years, the regulator has not maintained a particularly active or consistent dialogue with the industry. If we are honest, that lack of engagement is not typically a hallmark of a fully thriving market.”

Ochoa agrees the market is “insufficiently regulated.” He explains that the regulator had hoped a new framework would be submitted to the legislature during the first session of 2026, which ended on April 30. He adds that the sudden increase in taxes was particularly frustrating due to the lack of justification.

“The gaming industry in Mexico is not against paying its taxes, as long as they are proportional, fair and equitable,” says Ochoa. “But I would like to separate that issue from the regulatory one. We as a sector undoubtedly need a tax reform. However, the legal framework governing our activity is a different matter altogether.

“The modern era of gaming in Mexico began in 2004, with the first regulations of the law, which were subsequently amended three times. And today, these regulations result in an insufficiently regulated market, especially regarding the online sector.”

Birkin suggests the lack of a formal updated regulation is detrimental to attracting new capital into the market, despite its sizeable population and economy. “One of the first things operators look at is the size of the market and the tax rate,” he says. “The market has huge potential, (but) this will prevent the market reaching it, and smaller markets with lower tax rates now appear more attractive by comparison.”

Impact on Channelization

Perhaps the biggest concern among industry stakeholders is the tax hike’s impact on channelization into legal offerings.

Ochoa and the AIEJA already estimate that 60 percent of the total online gambling supply in Mexico is unregulated, leading to a significant loss of revenue for the nation.

“Further increasing taxes, which reduces customers’ play time and negatively impacts company revenues, creates unfair competition for legal operators and brutally empowers offshore or outright clandestine operators. Whichever way you look at it, these measures harm those who are trying to do things the right way,” he says.

Birkin disagrees with Ochoa’s 60 percent figure of unregulated gambling supply, believing it’s roughly 20 percent. But he believes the illegal market remains a real threat and something that wasn’t fully taken into account when the tax rise was approved.

He also views enforcement against illegal operators as an aspect that requires improvement in Mexico.

“It depends on so many other factors, but generally a substantial tax hike like this is going to have a negative impact on channelization,” Birkin adds. “You’re going to see less marketing as a result, and that opens the door for offshore operators to gain share.

“Tax policy is often done in a bubble where they don’t look at other markets. Taxing gambling doesn’t lose you votes—it’s seen as an easy revenue target. In Mexico, either there was no concerted lobbying effort using data from other markets, or if there was, the government clearly ignored it.”

Impact of the World Cup

Lazcano and Avedillo Builla suggest the true impact of the tax rise will come after the World Cup ends, with the tournament helping to mitigate its effects.

Birkin says the World Cup should provide a boost of around 8 percent to the total market, masking some of the underlying headwinds.

“The full impact is unlikely to be immediate,” Lazcano and Avedillo Builla contend. “We would expect it to become more visible over the course of the following year, likely by the end of Q1 2027.

“There are two main reasons for this,” they continue. “First, as discussed, the World Cup will likely create a temporary uplift in activity and revenues, which could help absorb the initial effects of the tax increase during 2026.

“Second, from a legal perspective, it is reasonable to anticipate that some operators may challenge the tax increase through constitutional actions. The timeframe for these proceedings means that we could begin to see more definitive outcomes (final rulings) within that same period.”

Ochoa suggests the tax rise has been purposely timed to try and tap into increased betting volume stemming from the World Cup, particularly with Mexico set to play a key role in the tournament as co-host with the United States and Canada.

“There’s no doubt that, for the government, its interpretation—a misinterpretation, in my view—is also to capitalize on the World Cup and the projected increase in betting volume during the event,” Ochoa says. “I think history will tell whether it was beneficial or, on the contrary, disappointing. The risk that many bettors will turn to platforms not regulated by our legal framework is indeed high.”

Mexico Futures

Lazcano and Avedillo Builla stress that the tax rise was also paired with the creation of a legal pathway for operators without a license to legitimately enter the market as registered digital betting platforms (DBPs), a potentially important regulatory shift in Mexico.

“Given that illegal gambling has long been the main source of unfair competition for licensed operators, this measure could contribute to leveling the playing field, potentially reducing the size of the unregulated market,” they explain.

“In that sense, what may initially appear as a disruptive or even uncommon development in relation to DBPs could, in the longer term, serve as an opportunity to reconfigure the sector, strengthen regulatory conditions and foster a more balanced and sustainable market environment.”

The sudden tax rise has no doubt caused uncertainty, but it’s not all doom and gloom in terms of the future outlook for Mexico’s gambling industry.

While the pressure is likely to increase on licensed operators post-World Cup, Mexico’s core appeal in terms of scale and growth potential remains undeniable.            

The next step appears to be long-awaited reforms to its regulatory framework. Then the question will be whether this was a short-term cash grab by the government or a genuine step in the right direction