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.
In order to access the $1.75 billion credit requested from the IMF, the Costa Rican government proposes to tax financial transactions, increase the tax on the profits of companies and individuals, and increase the tax on real estate.
On the afternoon of September 17, and in the context of a severe economic crisis that had been going on since before the beginning of the pandemic, the Alvarado administration presented the plan with which it intends to mitigate the fiscal impact of the Covid-19 crisis, a proposal to negotiate an agreement with the International Monetary Fund (IMF) to obtain a credit of $1.75 billion.
Despite a severe economic crisis, Costa Rican authorities have approved the imposition of a 1% VAT on several foodstuffs in the basic food basket, and 4% on certain tourist activities and construction services.
Before the emergence of the pandemic, the Costa Rican economy was already in a difficult state, and the impact of the covid-19 outbreak ended up hitting it in the worst way, which is evident in the performance of productive activity.
Until April 2 will be in public consultation in Costa Rica the regulations of the Value Added Tax Law, which incorporates the changes of the first proposal disclosed on January 29.
This is the second consultation carried out, since on January 29, 2019, the proposal for "Regulation of Title I of Law No. 9635 of December 3, 2018, denominated "Value Added Tax Law" (VAT) was made available to the public.
Regulations of the Value Added Tax Law in Costa Rica are in public consultation until February 4.
From the Ministry of Finance press release:
January 29, 2019. With the aim of achieving the greatest possible citizen participation in the implementation process of the Law to Strengthen Public Finances, from today, Tuesday, January 29 and until next Monday, February 4, the Ministry of Finance will have available to the public the proposed "Regulation of Title 1 of Law No. 9635 of December 3, 2018, called "Value Added Tax Law" (VAT).
"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.
Under study in the Legislature are 26 bills involving new taxes, increases of some existing ones and redistribution of others.
An analysis piece by Nacion.com notes that the Legislative Assembly is currently considering 26 bills introduced during the current administration which in some way involve the issue of taxes."...Of the total projects, 50% are attempts to raise them or create a new type of tax or fees. "
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 tax incentives for investment in Central America' in which an analysis was undertaken of the Central American experience in investment attraction through tax incentives.
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.
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.
"Figures from the deputy minister for micro, small and medium businesses indicate that of the approximately 297.000 companies that fall under the micro category, 60% remain in the informal sector, mainly due to tax burdens they would have to face in order to take that step. "