In this scenario of economic crisis, falling tax revenues and the need to finance recovery programs, in Guatemala and Costa Rica it is already proposed to increase current taxes and create new ones.
Guatemalan authorities are already beginning to discuss the fiscal policy they will apply in 2021, when the economy will have to face the effects of the economic crisis generated by the covid-19 outbreak.
"Public debt in terms of simple average for the Central American region will continue growing, reaching 43.1% of GDP in 2018, after having registered 42.5% in 2017."
The Central American Institute of Fiscal Studies (Icefi) estimates that for the current year the size of public expenditure of the Central Government in relation to the respective Gross Domestic Product of each country will be 21.4% in Costa Rica, 20.4% in El Salvador, 20% in Honduras, 18.4% in Nicaragua, 17.6% in Panama and 12.1% in Guatemala.
The good functioning of the institution in charge of collecting taxes is vital for ensuring economic development, as it means that honest companies who comply with their fiscal obligations are not at a disadvantage to those who don't.
In Costa Rica, the Ministry of Finance is using a predictive model designed with data mining techniques to determine the behavioral patterns of companies that might be circumventing tax payments.
Analyzing and crossing checking historical information from multiple databases, the statistical model used by the Directorate General of Taxation attempts to predict which companies are more likely to evade paying taxes depending on their historical behavior measured through transactions, tax returns and other data.By linking all of the information, they identify patterns of behavior similar to those of other companies that have evaded taxes in the past.
According to the ICEFI, "tax incentive policies seem to be a lost opportunity because of permanent tax expenses and the lack of tangible social benefits."
From a statement issued by the ICEFI:
Within the framework of the international meeting on Tax Justice and Transnational Fraud, held in Costa Rica, a study was presented on October 20 entitled 'The effectiveness of taxincentives for investment in Central America' in which an analysis was undertaken of the Central American experience in investment attraction through tax incentives.
Two or more operations may be comparable as long as there is no economic difference between them that can affect the price of a good or service.
Jose Molina Calderon's article in Prensalibre.com reports that "for the purposes of determining a price or amount that can be agreed between independent parties in comparable transactions in conditions of free competition as referred to in Chapter VI of the Tax Update Law (LAT by its initials in Spanish), comparing the conditions of transactions between related persons other comparable transactions between independent parties.
In 2010, when looking at total tax revenue as a percentage of GDP, Costa Rica has the highest ratio in Central America, and ranked fourth in Latin America, behind only Argentina, Brazil and Uruguay.
The study on Tax Statistics in Latin America, by the Organization for Economic Cooperation and Development (OECD), notes that while the ratio of tax revenue to GDP has been growing in Latin American countries, the average of the so called "tax pressure" is still below the average for countries who are members of the OECD.
The Peruvian Congress has passed a law which will raise the taxes on mining profits by six times its current value, equating to about $1,100 million annually.
The reform, driven by nationalist president Ollanta Humala, aims to reduce the high rate of poverty in the country which is rich in natural resources.
If many large companies are granted tax exemptions for long periods of time, why not give the same exemptions to SMEs?
The analysis of the topic in an article in Laprensa.hn on the high rate of informality in microenterprises in Honduras, can be extrapolated to all Central American countries.
The project aims to encourage information sharing in order to strengthen measures to prevent money laundering by the drug trade.
Argentina's tax authority (AFIP in Spanish), proposed that a multi-lateral tax information agreement be implemented, which could be adopted by Central American countries and others in Latin America, if it is approved by the Inter-American Tax Administration Center (CIAT in Spanish).
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