More Taxes in El Salvador

The third tax bill is now ready; it will tax bank transfers, luxury homes, as well as products used by printing companies.

Monday, July 8, 2013

The Ministry of Finance has not yet said when it will send the plan, which expects to increase revenuea by about $100 million, to the Legislature. According to the chief of Finance, Carlos Caceres, "we are working on the project which will, by 2020, return us to the same pre-crisis debt levels (before 2008). It is a sacrifice of 1.7% of GDP which must be made through expenses or revenue. "

"This is another reform on the revenue side. On the expenditure side not much has been done," said Jose Angel Tolentino, an economist at the National Foundation for Development (Funde).

Public debt represents more than 50% of GDP and economists have no doubt it will grow much more in the next few years. According to the expert Claudio de Rosa if the economy grows, the impact of this tax increase will not be resented much by the population. "If the economy grows faster than the pace of borrowing, of course it will be reduced to the levels required by the minister," he said.



More on this topic

Costa Rica as Seen by the OECD

June 2016

The organization says there is an urgent need to raise revenue and reduce expenses, "including the public sector wage bill, which is growing rapidly."

The report "Economic assessment of Costa Rica 2016" by the Organisation for Economic Co-operation and Development (OECD) highlights the fiscal problem as the main challenge for the country on its way towards accession to the bloc. 

Main challenges and key recommendations for 2016-17:

Challenge:
Tax revenues are low and spending is increasing rapidly, pushing public debt to high levels. Public administration is highly fragmented and the Ministry of the Treasury has limited control of the total public expenditure.

Recommendation:
Reducing the central government deficit by 2% of GDP during 2016-17 and then an additional 1.5%, approving and implementing the proposed tax reform, combating tax evasion, removing tax exemptions that have no economic or social justification, and containing expenditure growth.
Introducing a medium-term fiscal framework with a clear and verifiable rule for expenses.
Improving efficiency in public spending by strengthening the authority of the Ministry of Finance to control overall public sector spending and introducing a results-based budget.

Read full report "Visión General Costa Rica 2016" and "OECD Economic Surveys: Costa Rica 2016"

Costa Rica: Tax Exemptions Revised

February 2015

As part of a plan to reduce the fiscal deficit, the Finance Ministry is preparing a bill which aims to amend the existing tax exemptions scheme.

This project also seeks to create penalties for 1,259 misuse of tax breaks reported by the Technical Services Department up until 2014. It is anticipated that the initiative will be submitted to the Legislature in no more than two weeks.

Fiscal Crisis in El Salvador

October 2012

Academics and politicians are proposing an intersectoral agreement from which comprehensive tax reforms can arise in order to make public finances sustainable.

According to an article in Elmundo.com.sv, "The forum called 'Are Public Finances sustainable?', brings together economists and two deputies from the Special Committee on Finance and Budget of the Legislative Assembly to discuss and present their proposals for solutions to the current fiscal situation.

Salvadoran Public Finances Deteriorate

June 2011

In the first 23 months in office, nonfinancial public sector debt has increased by $2,074 million.

This large amount of debt would not be a problem if the economy had revived, but "... the current administration has not been able to revive the economy because local and foreign private investment has stagnated, and the public sector has not been acted with the effectiveness required to improve productive activities", says an article in Elsalvador.com