After the multi-sector dialogue in Costa Rica was concluded, the main risk qualifiers agree that because the agreements signed to reduce the deficit are not enough, the government should execute its fiscal policies in a timely manner.
Although Costa Rica's fiscal situation was already precarious before the health and economic crisis that led to the covid-19 outbreak began, the scenario started to worsen since March of this year.
The Costa Rican government is facing a complex scenario, since by not achieving consensus to access international loans, it will be forced to seek domestic funding sources, which would put pressure on the exchange rate and interest rates to rise.
The economic crisis that the country is going through due to the outbreak of covid-19 ended up sharpening the country's fiscal situation.
After the Alvarado administration agreed to backtrack on the proposal to negotiate a $1.75 billion loan with the IMF, it is predicted that next year the government will depend on domestic debt to finance its expenditures.
In this regional context of economic crisis, falling fiscal revenues and increasing public debt, Costa Rica's debt level is expected to rise to 75% of GDP by 2021, and in the case of El Salvador, the indicator could exceed 85%.
The outbreak of covid-19 in Central America forced the government to declare severe household quarantines and to restrict several economic activities, restrictions that in some cases are still in place after five months of health and economic crisis.
For Moody's, the Costa Rican government's response to the Covid-19 crisis will put negative pressure on the country's fiscal profile.
According to the rating agency's analysis, the measures include a three-month moratorium on tax payments, a gradual reduction in corporate social benefit contributions and extended credit lines for the companies most affected by the economic recession.
The National Assembly of Panama approved in second debate the draft law that extends the period of tax amnesty until June 30, 2020.
The initiative proposes that up to 85% of the total interest, surcharges and fines be recognized if payment is made after February 29, 2020 until June 30 of the same year, so that taxpayers may proceed to make their corresponding payments or credits.
With the Nicaraguan authorities confirming that they will review the Tax Agreement Law again in 2020, the business sector is calling for the correction of several measures that have decapitalized companies operating in the country.
On February 27, 2019, the reform to the Tax Harmonization Law was approved, which consisted in raising income tax from 1% to 2% for medium sized companies with higher income, and from 1% to 3% for large taxpayers.
For interest, penalties or surcharges to be 100% forgiven, taxpayers will have until November 30,
2019 to pay their overdue taxes.
On September 26, the National Assembly approved Bill 78 of 2019, which aims to exonerate from interest, surcharges and fines of taxes that are delinquent and owed by taxpayers.
The Guatemalan Chamber of Commerce opposes the special tax scheme for agricultural activity approved by Congress, arguing that it is unconstitutional and violates the principles of tax equity.
The new fiscal regime for agriculture, approved last September 24 by the deputies of the Congress of the Republic, has been surrounded by controversy, as from the beginning the chambers of industry and commerce expressed their opposition.
The Guatemalan Congress approved a bill that contemplates the creation of a special tax regime for agricultural activity.
Although this bill was involved in controversy days ago, as the chambers of industry and commerce expressed their opposition, Congress decided to approve the bill. See full bill.
In Guatemala, the chambers of industry and commerce oppose the bill that proposes to create a special tax regime for agricultural activity.
The project "Law on Simplification, Updating and Tax Incorporation", which has been in Congress for more than two years, was scheduled for final discussion until September 10. See full bill.
In Nicaragua, the tax exemption that benefited the import of products such as canned sardines, prepared soups, toilet soap, rubber gloves, among others, was eliminated.
With this change, the products concerned will be applied the Import Tariff Rate (DAI), which is a tax contained in the Central American Import Tariff and is applied to products from countries outside the Central American region, on the value of them, the taxes have variable rates that can range between 5% and 15%.
Although Costa Rica and Nicaragua approved fiscal reforms this year, it is predicted that the expected results in terms of tax collection will not be achieved.
The document "Centroamérica: análisis sintético, por país, del desempeño de la recaudación tributaria en 2019", prepared by the Instituto Centroamericano de Estudios Fiscales (Icefi), explains that, in the case of Costa Rica and Nicaragua, the expected results in terms of improved collection are still in doubt.
Arguing that the economy reports stable growth, and that a prudent management of monetary and fiscal policy has been made, the agency decided to maintain in Ba1, with a stable perspective, the country's credit rating.
The low fiscal deficit caused by strict controls on public spending and reduced indexes of public indebtedness, as well as a demonstrated economic resilience to extra-economic events, are other of Moody's arguments.
In Costa Rica, modifications to the salary tax brackets establish that income of up to $1,394 will be exempt from collection of the tax, and those exceeding $1,394 and up to $2,046 will pay 10%.
On June 25, the Ministry of Finance published in La Gaceta the new income tax brackets to be applied to salaries between July 1 and September 30, 2019.
The publication details that the tranches will remain like this:
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