Opposition to Reforms to Free Trade Zone Law

The ICEFI states that the proposed reforms to the Free Zones Law in Guatemala encourage a public investment model based on tax privileges for specific groups of companies.

Wednesday, February 21, 2018

The Central American Institute of Fiscal Studies (Icefi) reiterates its arguments against continuing an obsolete and ineffective model of attracting public investment based on tax privileges for specific groups of companies and encourages the initiation of the discussion on a general investment law.  For this reason, it does not recommend to the Congress of the Republic the approval of the reforms to the Law on Free Zones contained in the legal initiative with the registry number 5174.

From a statement issued by the ICEFI:

The Icefi reiterates that due to the inability to generate domestic savings, Guatemala and the rest of Central America's strategy has been to try to attract foreign investment through tax privileges which, far from achieving an increase in investment, has reduced fiscal space for the financing of public economic and social investment. During the period 1990-2016, despite the existence of exemptions and other differentiated tax treatments, Guatemala attracted foreign investment on average of only 1.5% of GDP, making it the least successful country in the region in that strategy. 

According to national and international surveys, such as the Global Competitiveness Index, tax rates are not the determining factor when entrepreneurs decide not to invest in Guatemala. On the contrary, the factors that discourage investment are high levels of crime and theft, corruption, the inefficiency of government bureaucracy and an inadequate supply of infrastructure. For this reason, the Icefi believes that Guatemala must abandon the obsolete strategy of maintaining or expanding special tax treatments for specific groups of entrepreneurs such as the maquila industry, net centers and free zones, and advance in the discussion of a general investment law that would correct the aspects that are actually preventing the arrival investors or even driving them away.

Read full release (in Spanish).

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