The Chamber of Textile, Clothing Companies and Free Zones states that if the new law on Free Zone included the tax, it would drive away millions of dollars in investments.
Elmundo.com.sv reports that "The Chamber of Textile, Clothing Companies and Free Zones of El Salvador (Camtex) on Wednesday opposed changes made by the Finance Minister Carlos Cáceres to the proposed amendments to the Law on Free Zones, agreed with the sector since October 2011."
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.
The country has until late 2011 to submit a plan to eliminate privileges for companies at Free Trade Zones.
Deputy Economy Minister, Mario Roger Hernández, said the deadline for submission was to expire at the end of 2010.
"The WTO mandates that middle-income countries, such as El Salvador, must change the benefits they receive from free zones no later than at the end of 2015." Elsalvador.com published.
The World Trade Organization demands explanation as to why the country is maintaining a 6% subsidy for exporters and various fiscal benefits for free zones.
El Salvador should have terminated the 6% exports subsidy four years ago, according to the agreement it reached with the World Trade Organization. The country was not able to do it, because “businessmen opposed it and made the government promise it would sustain it until a proper policy for fostering exports is in place”.