The Honduran investment promotion office has sent a letter of invitation to entrepreneurs who lost their tax exemptions in Guatemala.
Tuesday, February 2, 2016
Honduras is looking to attract investment from Guatemala citing two advantages over its competitors: tax incentives on exports and port infrastructure in the Caribbean.
The person responsible for promoting foreign investment in Honduras, Vilma Sierra, sent a letter of invitation to the businessmen who lost their tax exemptions in Guatemala. The letter sent alarm bells ringing for Guatemalan union leaders because of the resemblance they have with the Honduran market, and the tax incentives they have lost and poor port infrastructure available.
Elperiodico.com.gt reports "... the concerns shown by business related to the lack of competitiveness. Puerto Santo Tomas in Guatemala, and Puerto Cortes in Honduras, are about the same distance from their capitals, 300 and 370 kilometers respectively. " However, the letter notes that Puerto Cortes "is the only deepwater port in Central America." Carlos Lainfiesta, Chairman of the Board of the Port of Quetzal (EPQ), confirmed that the Honduran terminal can receive larger, deeper draft vessels "without hardly investing anything."
Other leaders such as Fanny D. Estrada, of the Guatemala Exporters Association (AGEXPORT), noted that "some companies are thinking about it especially in the textile sector". This is in reference to exports of clothing and other products in Honduras which have duty-free access to major markets, which is not so in Guatemala, where export incentives have been banned since 31 December. Arturo Soto, president of the Binational Chambers of Commerce (Ascabi) said openly that "the country is not working to gain investments."
The regulation for Special Public Economic Development Zones, which came into effect in Guatemala on February 4, establishes fiscal incentives for companies operating under this scheme.
Among the tax benefits provided by the Law on Special Public Economic Development Zones (ZDEEP), include the exemption for 10 years of 100% of income tax, as well as the temporary suspension of taxes associated with imports.
The year-end expiration of the Law on the Promotion and Development of Export and Maquila Activities makes it essential to adopt new rules to maintain and improve incentives for foreign investment.
The Guatemalan-German Chamber of Commerce (AmCham) believes that it is not only necessary to pass a law to maintain the exemptions and incentives under the existing legislation, but that the opportunity must be taken to improve and "... make an adaptation of the rules in accordance with the parameters of the World Trade Organization (WTO) ".
The problem with income tax exemptions is that they favor high-return projects that would probably have been made anyway.
From an IDB document entitled "The effectiveness of tax incentives: The case of export processing zones in Costa Rica, El Salvador and the Dominican Republic".
The business sector is demanding that the government take action to minimize the impact of the expiry at the end of the year of tax incentives granted to foreign firms in free zones.
About 1,300 companies enjoy the benefits granted by the World Trade Organization, which expire on December 31 this year. Two companies have already moved their operations to other countries, according to the Ministry of Economy of Guatemala.
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