In the midst of Nicaragua's political and economic crisis, the National Assembly approved a tax reform that increases the income tax of large taxpayers from 1% to 3%.
On the morning of February 27th, the reform of the Tax Concentration Law was approved, which also contemplates raising from 1% to 2% the income tax for medium sized companies with higher incomes.
In Nicaragua, the government plans to increase employer, labor, and state Social Security contributions, and to approve a tax reform that would increase taxes for medium and large companies.
Although the country has been in a serious economic and political crisis since April 2018, when the government tried to implement reforms to the Nicaraguan Institute of Social Security (INSS), the Ortega administration is once again trying to make changes to the institution, this time through an administrative resolution.
The technical redefinitions that make up a successful tax reform should be based on a reformulation of the social contract which establishes national goals.
Nacion.com reports that "According to Augusto de la Torre, Chief Economist at the World Bank, the fiscal debate is more than just an economic debate, it is almost a philosophical debate about the kind of state we want to have."
And apparently for bureaucracies in general, including those of international organizations; an "expert" from the Inter-American Development Bank is supporting tax reform in Costa Rica.
Although officially the IDB "does not advocate a tax burden or specific tax policy," one of its officials warmly supports the project to increase the tax burden to support the Costa Rican economy, to the point of suggesting that the tax burden be similar to Argentina’s.
A "preliminary agreement" was struck, under which $35 million would be disbursed in October if a series of measures are enacted.
Some of the measures requested by the International Monetary Fund (IMF) include reforming the 2009 Budget and concluding a proposal for the 2010 Budget.
"Disbursement of the money, warned IMF, will depend on the degree of progress in implementing the agreed measures, which would be evaluated by the Directorate of the Fund by the end of October", reported Nicaraguan newspaper La Prensa.
The National Breeders Commission (Conagán), indicated they will not accept being taxed further.
René Blandón, president of the Commission, said that a tax increase will demotivate livestock breeders.
René Vallencillo, who was invited by the breeders to talk on the topic, "criticized the increase of retentions in the Agricultural Exchange, which would reach 5%", reported newspaper El Nuevo Diario.
Agricultural companies stated their concern in the first meeting they held to analyze the Government's proposal.
Growers will be affected by the possible increase from 1% to 2.5% in retention to transactions done through Agricultural Exchanges, said Felipe Argüello, general manager at Bolsagro, the Agricultural Products Exchange.
He also added, in an article in Elnuevodiario.com: "It was hard for individual growers to declare by themselves, being agriculture such a disperse and fragmented sector. For this reason such scheme was successful, as it was attracting and ordering producers".
Experts and economists agree that the government is seeking funds just to cover its budget deficit.
The tax reform is being discussed behind closed doors by the Superior Council of the Private Enterprise.
Economist Néstor Avendaño told newspaper La Prensa: "This has been handled secretively ... an optimal tax reform should go beyond simply raising collection".
A so called "tax pact" will be hurried by the Government, after pressure from the International Monetary Fund.
"We must discuss this, we must be aware of the fact that in 2010 this will impact economic performance, and this is why it is being analyzed by the Superior Council of the Private Enterprise", indicated Bayardo Arce, Presidential Adviser in economic matters, in an article in newspaper "La Prensa de Nicaragua".
The business sector and the Government agreed to the postponement of the tax reform for two years in order to stimulate productive activity.
President Daniel Ortega addressed the need to have a good discussion on the issue and reach a consensus.
Leonor Alvarez wrote in an article in Elnuevodiario.com.ni: "After a four-hour meeting, Ortega said that tax coordination will begin to be planned in October because he believes that there will be a clearer picture during the last three months of the year on world economy trends, which is the basic agent in determining tax policy."
The Superior Council of Private Enterprise, COSEP, considers that this is not the time to negotiate a tax reform.
José Adán Aguerri President of COSEP, reported that within the current economic context, fiscal reform would not be a response to alleviate the difficulties.
Cristhian Marenco referred to statements by the entrepreneur in an article in Elnuevodiario.com.ni: "This is not the time for tax reform.
The Government did not provide details on how it plans to modify the tax collection system, but made the commitment to the IMF that it will increase revenue from tax collection.
Tax law expert, Julio Francisco Báez, said that the reform will not only seek to increase collection, but to stimulate investment and eliminate anti-exporter biases. Bayardo Arce, Presidential Economic Advisor, spoke of removing tax exemptions from various sectors as they are considered to be "excessive."