Faced with the health crisis affecting the Salvadoran economy, businessmen from the industrial sector asked the government to postpone income tax declarations until June 2020.
Another of the specific requests of the Salvadoran Association of Industrialists (ASI), is the prompt refund to exporters of Value Added Tax, through Treasury Notes.
Salvadoran exporters claim that the system used by the Ministry of Finance from November to return VAT has put a strain on companies liquidity.
The new mechanism to refund VAT to exporters (which has been in force since November), has caused new problems between the sector and the tax authority of El Salvador.
It has been announced that as of November 17th enterprises must carry out a mandatory exporter VAT self-assessment using a web platform.
The union of exporters is not entirely satisfied with this online system, stating that it has some limitations, such as only allowing "... cross matching withholding of exporter VAT with importer VAT to recover the money.
In El Salvador the export sector claims that delays of up to nine months are being reported on tax refunds due from the Treasury, which should take no more than 30 days.
Seven months ago the Exporters Corporation of El Salvador (Coexport) submitted to the Ministry of Finance a proposal for self-assessment of Value Added Tax (VAT) with the aim of reducing the time it takes to receive tax refunds.
A proposal has been made for a self-assessment system which aims for the government to quickly provide refunds of the 13% VAT to exporters.
Elsalvador.com reports that "in light of the government's failure to repay on time the 13% Value Added Tax (VAT) to export companies, the same companies, unionized under the Corporation of Exporters of El Salvador (Coexport ), have decided to create their own proposal in order to quickly get back the funds which belong to them. "
The removal of the 6% return on exports has not been compensated in practice by the laws that are intended to have a dynamic effect on foreign sales.
Elsalvador.com reports that two years after MPs approved three laws intended to replace the return of 6% on exports, known as "drawback", the exporters have been "Without a bowl and without the soup".
Last year, the Stock Exchange of El Salvador negotiated credit notes for $120 million, and so far in 2012, $37 million has been negotiated.
From a press release of the Exporters Corporation of El Salvador:
So far in 2012, the Stock Exchange of El Salvador (BVES) has negotiated $37 million in Public Treasury Credit Notes (PTCN) issued by the Government through the Ministry of Finance.
The regulation establishing export incentives for "draw back" substitutes is still pending approval in El Salvador.
During the inauguration of the Third Meeting of Exporters, the Exporters Corporation of El Salvador (Coexport) called on the Government to establish the dates for the entry into force of the regulations on the Law for the Promotion of Production, which establishes new incentives.
New investments in the sector are pending the approval of El Salvador's new tax-free zone law.
According to the Salvadoran chamber of textile manufacturers (CAMTEX in Spanish), the reforms being considered by the government comply with all the demands made by the World Trade Organization (WTO).
"However, CAMTEX director, Patricia Figueroa, comments that until the reforms are finally approved by congress the investments will not get the green light," reports Laprensagrafica.com.
If a reform of the law is approved, tax exemptions enjoyed by members of the scheme would be limited.
Although the purpose of the law reform is to modernize the free zones scheme and meet the requirements established by the World Trade Organization, companies currently operating under the scheme would be affected.
One of the proposed changes is the elimination of unlimited tax exemptions based on export performance, which up until now has applied to all companies in free zones.
There is a growing demand for textiles and clothes manufacturing, but a new Law on Free Zones is needed in order to bring fresh investments to this sector.
The World Trade Organization (WTO) has determined, after two extensions, the country should, in 2015, replace the law that has been in force since 1998, which grants tax benefits such as a total and permanent exemption from taxes, among others.
Government and private company representatives have achieved an 80% consensus on the new draft law on Free Zones.
So says the executive director of the Chamber of the Textiles, Clothing and Free Zones (CAMTEX), Patricia Figueroa, without providing specific details on the proposals.
An article in Laprensagrafica.com quotes the executive as saying "However, both the government and the private sector have agreed that the new incentives to the sector are linked to the investment that companies make in social responsibility projects (CSR),"
The country's export sector is calling for the government to take concrete steps to replace the "drawback" mechanism eliminated in January.
Since January this year, exporters have stopped enjoying the refund in cash of 6% of their sales abroad. At that time the Guatemalan congress approved three news laws that sought to provide alternative incentives for exporters.
Among incentives applied in short term is the implementation of improved energy rates and changes in collection of VAT.
“Fearing a drop of up to 15% in exports caused by the elimination of the 6% subsidy, Rigoberto Monge, advisor to the Salvadoran Association of Industrialists (ASI), said the proposal of the Ministry of Economy (MINEC) should be supplemented with the creation of very specific tools supporting the industrial sector and exporters," reports the article in Laprensagrafica.com.