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.
Although poor social indicators and a low tax burden are a threat to the country's progress, for Fitch the Guatemalan economy has the capacity to overcome external adversities.
After the last visit of Fitch Ratings to Guatemala, representatives of the rating agency expressed the opinion that health, education and security indicators, together with the tax situation, are issues that should concern the country.
"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.
Calendar of payments of obligations corresponding to December 2017 and Tax Memorandum on the minimum wages in effect as of January of this year.
From a Memorandum sent by Tezó and Associates:
On December 29, 2017, the Ministry of Labor and Social Welfare published Government Agreement No. 297-2017 in the Diario de Centro América, whereby the new minimum wages for agricultural, non-agricultural and export and maquila activities are established, effective as of January 1, 2018.
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.
Reviewing the regulation on banking secrecy and replacing the board of the SAT with a new Administrative Tax and Customs Tribunal are part of the proposals to improve tax administration in the country.
From a statement issued by the Central Institute for Fiscal Studies (Icefi):
Guatemala.- During the session of the Committee on Public Finance and Currency of the Congress, on February 19, the Icefi participated in a specific working session to discuss amendments to the Organic Law of the Superintendency of Tax Administration (SAT ), during which the final version of the Diagnostic was released and a roadmap proposed for effective tax administration.
In the opinion of the Central American Institute of Fiscal Studies, the only way to consolidate public finances in a sustainable way is to reduce tax breaks and increase tax collections.
From a statement issued by the Central Institute for Fiscal Studies (Icefi):
The Central American Institute for Fiscal Studies (Icefi) has proposed as a fiscal agenda for development: meeting the public demand for integrity and transparency; effective, efficient and effectual public spending as a tool for inclusive and democratic development; and financial viability with taxation being part of democratic accountability.
The argument is that the tax on cement will increase the cost of housing by at least 6% and the tax on phones will directly affect users of prepaid telephone lines.
From a statement issued by the Chamber of Industry of Guatemala:
The Chamber of Industry of Guatemala emphasizes that even though it promptly denounced the risk of lack of transparency and accountability of the state budget for Fiscal Year 2015, it has been approved and will lead to negative impacts on the population.
The average tax burden for the region is 13.4% of GDP, while the average public expenditure increased from 18.7% in 2013 to 19.2% at the end of 2014.
From the Introduction of the report Macrofiscal profiles in Central America, from Instituto Centroamericano de Estudios Fiscales (Icefi):
The fiscal situation has worsened in Central America in recent months, mainly due to a structural lack of sufficient resources to meet the needs of Central Americans and realize many of the commitments made by governments.
The tax burden was placed at 10.9%, as a result of a tax proceeds of $5.912 million, 8.1% higher than in 2012.
Guatemala's fiscal deficit ended the year at 2.2%, below the Government's initial estimate of 2.5 %.
From a press release by the Ministry of Finance:
The Ministry of Finance reports that at the close of the fiscal accounts for 2013 has been completed and given results that demonstrate the efficient and sound management of fiscal policy. The deficit stood at 2.2% of GDP, a level that fosters macroeconomic stability and economic development. The delay in approving budget support loans and behavior of tax revenues represented adversities which were properly dealt with.
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.
Experts agree Alvaro Colom’s successor will face a difficult fiscal, economic and political situation.
First, it will be difficult to achieve the tax reform needed to tackle the decline in tax revenues which is set to continue into 2012. Ricardo Barrientos, Central Institute for Fiscal Studies (ICEFI in Spanish), also said that the losing candidate in the election will become the main opposition, and will complicate any reform attempts or approval of additional financing for the state.
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. "
A critical view of the simplistic methods used in calculating the tax burden that supports an economy.
When analyzing a tax reform proposal, the first argument considered is what is the percentage of taxes collected by the state in relation to the Gross Domestic Product (GDP) of the country.
Juan Carlos Hidalgo, on his blog at Elfinancierocr.com, shows with solid arguments, the fallacy of comparing, without thorough analysis, the public figures of the ratio of tax revenue to GDP, which leads to erroneous conclusions which usually hide the main problem: the spending inefficiency demonstrated by the state with the money collected through taxes.