Fiscal Challenges for the New Government

Insufficient resources to finance public spending and the accumulation of outstanding tax credit repayments are some of the problems that the government will face in Guatemala in 2020.

Thursday, March 21, 2019

According to the Central American Institute of Fiscal Studies (Icefi), the new government should make an important effort to improve the effectiveness of the Superintendence of Tax Administration, since the percentage of non-compliance with Value Added Tax (VAT) has been growing since 2012 and the percentage of income tax and other taxes is unknown.

See "Guatemala's Fiscal Deficit: 2019 Forecasts"

Icefi held an event on March 21, 2019, in which they presented to technical representatives of the political parties the challenges that the winners of the 2019 elections will face in terms of fiscal policy.

For the institution, indicators of fiscal transparency show deterioration in recent years, a disincentive to citizen support for an increase in public spending that deepens distrust in the authorities. On the revenue side, Icefi showed that tax revenues are the main source of current financing of public spending, which is also insufficient because of a too low, rigid, and falling tax burden, plummeting to 10.0% in 2018, thus falling back to the 1998 level.

"The tax system suffers from structural flaws such as: it is not enough to finance public spending; it is unfair in the sense that it has a regressive structure (those with lower incomes pay more than proportionally more taxes than those with more incomes); it creates financial problems such as the accumulation of unpaid tax credit refunds; and, it makes it difficult to fight against illicit capital flows," explains Icefi in a statement.

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