More Taxes: An Idea That Appeals to Governments

In this scenario of economic crisis, falling tax revenues and the need to finance recovery programs, in Guatemala and Costa Rica it is already proposed to increase current taxes and create new ones.

Wednesday, September 23, 2020

Guatemalan authorities are already beginning to discuss the fiscal policy they will apply in 2021, when the economy will have to face the effects of the economic crisis generated by the covid-19 outbreak.

The Executive's plan is that by 2021 Congress will approve a budget of close to $12.95 billion, however, tax collection projections for next year have been set at $8.35 billion.

In order to cover the deficit of the Income and Expenses Budget for 2021 and increase collection, representatives of the Superintendence of Tax Administration (SAT) have suggested that the increase in the tax on cement and fuel should be evaluated.

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Marco Livio Diaz, head of SAT told Prensalibre.com that "... as a country we have the responsibility to increase the tax burden and possibly a tax reform would be needed to achieve this and maintain the relationship between debt levels and tax revenues."

Diaz added that "... it is not expected to increase general taxes for the population, but rather some specific taxes and that for the time being, changes are being analyzed to the tax on the distribution of cement and the tax on the distribution of oil and its derivatives (fuels), known as IDP."

Guatemala is not the only country in the region where proposals to increase the tax burden are already being considered, since in Costa Rica the Alvarado administration presented on September 17 the plan that intends to mitigate the fiscal impact of the Covid-19 crisis.

The plan being discussed in Costa Rica consists of the following: in order to access the $1.75 billion credit that is intended to be requested from the IMF, the government proposes to tax financial transactions, to increase the tax on the profits of companies and individuals, and to increase the tax on real estate.

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"If we want first-world services, we must pay first-world taxes" - Laura Chinchilla.

The tax burden in Central America hovers between Guatemala's 9.9% and Nicaragua's 17%. In Brazil its 29%, whereas Scandinavian countries have tax burdens around 40%.

Tax collection has been hardly hit by the economic crisis, making evident the need for fiscal reforms to solve the structural problems of the region's tax systems.