A proposal has been made for a self-assessment system which aims for the government to quickly provide refunds of the 13% VAT to exporters.
Elsalvador.com reports that "in light of the government's failure to repay on time the 13% Value Added Tax (VAT) to export companies, the same companies, unionized under the Corporation of Exporters of El Salvador (Coexport ), have decided to create their own proposal in order to quickly get back the funds which belong to them. "
The removal of the 6% return on exports has not been compensated in practice by the laws that are intended to have a dynamic effect on foreign sales.
Elsalvador.com reports that two years after MPs approved three laws intended to replace the return of 6% on exports, known as "drawback", the exporters have been "Without a bowl and without the soup".
Last year, the Stock Exchange of El Salvador negotiated credit notes for $120 million, and so far in 2012, $37 million has been negotiated.
From a press release of the Exporters Corporation of El Salvador:
So far in 2012, the Stock Exchange of El Salvador (BVES) has negotiated $37 million in Public Treasury Credit Notes (PTCN) issued by the Government through the Ministry of Finance.
The regulation establishing export incentives for "draw back" substitutes is still pending approval in El Salvador.
During the inauguration of the Third Meeting of Exporters, the Exporters Corporation of El Salvador (Coexport) called on the Government to establish the dates for the entry into force of the regulations on the Law for the Promotion of Production, which establishes new incentives.
The country's export sector is calling for the government to take concrete steps to replace the "drawback" mechanism eliminated in January.
Since January this year, exporters have stopped enjoying the refund in cash of 6% of their sales abroad. At that time the Guatemalan congress approved three news laws that sought to provide alternative incentives for exporters.
Among incentives applied in short term is the implementation of improved energy rates and changes in collection of VAT.
“Fearing a drop of up to 15% in exports caused by the elimination of the 6% subsidy, Rigoberto Monge, advisor to the Salvadoran Association of Industrialists (ASI), said the proposal of the Ministry of Economy (MINEC) should be supplemented with the creation of very specific tools supporting the industrial sector and exporters," reports the article in Laprensagrafica.com.
The program allocates $ 28 million for a total of 21 instruments to benefit exporters.
Mario Cerna, Vice Minister of Commerce and Industry in the MINEC, said half of the resources will go to "non-reimbursable funds for co-financing of all types of business."
Laprensagrafica.com outlined in their article: "The rest of the money will be divided between efforts to promote export products and returns associated with the purchase of supplies and other components to boost the sector. In the coming years it is expected to maintain the amount of resources or increase them."
The Minister of Economy submitted to the National Assembly a draft bill that would remove the 6% export incentive.
Hector Dada Hirezi, Minister of Economy, said the country has had the obligation to eliminate this incentive since 1990.
"The continuity of this incentive had generated claims from some trading partners, mainly from the Dominican Republic, with whom El Salvador has had several trade disputes due to this issue.
The country aims to increase its exports to 530 products by 2014.
The new goal is part of an export strategy set by the Government which seeks to replace the current subsidy of 6% (Drawback) for foreign sales.
Capitales.com reports, "Authorities have also set other goals mostly related to increasing the number of export destinations from 52 to 60 and increase the number of exporters with sales greater than $500,000 from 428 in 2008 to 540 in 2014."
Exporters are concerned that the government's $175 million investment in the sector will not make up for the loss of incentives.
El Salvador's Corporation of Exporting Companies, known as COEXPORT, believes the impact on the export sector of the $175 million government investment plan will be minimal.
Francisco Bolaños, president of COEXPORT, told Laprensagrafica.com that, "according to our calculations, the employment bonus will cover around 4,000 jobs while job losses are in the region of 28,000. This is an example of where the budget falls short. Let's remember that the main aim is to create jobs and this is why much more is needed".
While exporters acknowledge that the strategy includes some useful instruments it is does not go far enough for the development of the sector.
El Salvador’s Corporation of Exporting Companies, known as COEXPORT, has reviewed the new Integrated Strategy for the Promotion of Exports (EIFE) and found no substitute for the “drawback” instrument, an import duty rebate triggered by the re-export of goods that were initially imported.
The government presented its "National Export Strategy" in which it plans to invest $175 million during its five year mandate.
The funds come from the national budget in addition to a $40 million loan from the Inter-American Development Bank (IDB), commented the Secretariat to the Presidency.
The presentation made no mention of how much the annual investment will be.
The Economy Ministry announced that the ‘Drawback’, a 6% incentive to exporters, will not be paid anymore in 2011.
Exporting companies are working with the government to devise a gradual elimination plan, to be executed this year.
Economy Minister Hector Dada explained that by the end of 2010 the 6% subsidy must be eliminated, because the government assumed the commitment committed to do so in the past.
The Chamber of Exporters has proposed the government a gradual reduction of “Drawback”, a benefit for exporting companies, by 1% per year.
Silvia Cuéllar, executive director of the chamber, explained that the exports promotion proposal presented by the government excludes all the suggestions made by them in regards to the “Drawback”.
“We are concerned, because the government seems to believe their proposal compensates the 6% benefit of the ‘drawback’. We need to conclude the discussion of the document to open the compensation issue”, warned Cuéllar, according to Capitales.com.