Employers point to political instability, energy costs and lack of infrastructure as the main factors keeping out investment and reducing competitiveness.
A survey carried out with employers by the National Association of Private Enterprise (ANEP) showed as its first result the lack of competitiveness of the country in terms of attracting foreign investment, due to uncertainty created by political instability.
The government has agreed to modify the terms of the tax reform proposal to take into account criticisms made by the private sector.
Salvadoran private companies have outlined to officials the adverse effects that the country would face if the proposed new tax measures were applied, receiving signals of openness to a discussion from the Government, who for the first time since 2009 and 2010 has agreed to negotiate tax reforms with entrepreneurs.
Salvadoran businessmen, through ANEP, will submit an appeal to the Constitutional Court against the tax reform in force since January 2012.
"The measure seeks to challenge the legality of two executive changes implemented: a 5% tax on profits of companies operating in the free zone regime and the law of international services (in the form of income tax) and the application of a 1% minimum tax on the total sales of companies that report losses for two consecutive years", noted an article in Laprensagrafica.com.
ANEP, the Association of the Private Enterprise, stated its regret with the recently approved tax hike.
ANEP press release:
Regarding the tax increase approved by the FMLN, GANA, PCN and PDC, the National Association of Private Enterprise, ANEP, declares:
1. We lament that the representatives who voted for more taxes care more about what the government offers them in exchange for their votes, than the consequences of causing unemployment and deepening poverty in El Salvador.
The private sector has rejected the FMLN’s proposal to reform income tax law.
Jorge Daboub, president of the National Association of Private Enterprise (ANEP in Spanish), said the proposal is not based on a deep technical analysis of the subject. The first action that should be performed is to correct the "waste of Salvadorans’ tax dollars."
"Daboub believes that the proposed 0.8% tax that is to be applied to the gross income of companies is a new tax that punishes employers who have been affected by the economic crisis.
Private business leaders spoke out against the creation of new taxes and increasing income tax.
"The private sector struggles between uncertainty and anger, after a study by Eurasia ensures that the Salvadoran Government is expected to approve an increase to the ceiling of income tax, a new estate tribute and a security levy," Laprensagrafica.com reports.
The business sector will present proposals to solve the fiscal deficit, which may also be the foundation of a social pact.
17 proposals will be presented, aimed at two large areas: reducing spending and increasing revenue.
Jorge Daboub, president of the Salvadoran Chamber of Commerce and Industry, explained: “We understand that the country has a serious fiscal problem, the deficit has worsened due to the country’s negative economic situation.
In El Salvador, the debate over the advantages and disadvantages of dollarization has been reignited, as the government is in need of resources for funding its programs.
President Funes has regretted that Dollarization has limited El Salvador from taking actions to combat the economic crisis. However, Augusto De la Torre, chief economist for Latin America and the Caribbean at the World Bank, repeated that dollarization is not an obstacle, and that in the case of Panama and El Salvador it has been key to relieve them from external pressures and exchange rate volatility.
If the tax reform proposed by the Salvadoran government is enacted, machinery imports would pay 13% value added tax.
Additionally, expenditure reimbursements and tips would pay value added tax.
Economist Luis Membreño told newspaper Prensagrafica.com: "This, in addition to the elimination of the 'drawback' benefit, does not foster investment nor job generation.
ANEP, the Private Enterprise Association warned the proposed tax reform would impact negatively on consumers.
Federico Colorado, ANEP President, said: "In our opinion, in times of crisis we must study how to make the economy more dynamic, make it grow and analyze how to boost the diverse productive sectors".
"The project, to be submitted in the next days by the Treasury Ministry, intends to increase collection to last year's levels of $1 billion. Tax collection has been lower this year, because of the crisis", reports SDPnoticias.