The Government and the private sector have started negotiations to create a proposal for fiscal reform, which could include, among other things, changes aimed at achieving the financial sustainability of the Social Security scheme.
Without revealing details of the first sessions, the Higher Council of Private Enterprise (Cosep) reported that the reform negotiated with the authorities is focused on preventing insolvency of the Nicaraguan Social Security Institute and guaranteeing the country's economic growth.
The 2017-2018 Guide by the Nicaraguan - German chamber of commerce provides details on tax exemption regimes by sector, requirements for foreign investors and other data.
Until 2023 renewable energy projects in Nicaragua may opt for the exemption of import duty on machinery and equipment, VAT, income tax and municipal taxes.
The National Assembly approved a reform proposed by the Ortega administration to extend the term of tax benefits for energy generation projects with renewable sources.The law established that the maximum period to opt for exemptions was January 2018, but now they will remain in place until January 2023.
In Nicaragua, the Ortega administration is proposing to extend tax benefits for energy generation projects using renewable sources for another five years.
Continuing with the strategy of promoting energy generated from renewable sources, the government is proposing extending tax incentives for these types of projects, as it did in June 2015.At that time, the benefits were extended until January 2018.
In 2016, the ratio between total expenditure of central governments of the countries of the region and GDP remained almost unchanged from the previous year, going from 18.3% to 18.6%.
From the report "Macroeconomic Profiles: 8th edition", from the Central American Institute of Fiscal Studies (Icefi):
The Central American Institute for Fiscal Studies (Icefi) presented its most recent edition of the Macro-Fiscal Profiles of Central America, which contains an analysis of the fiscal situation of Central America and each of the countries of the region, at the end of fiscal year 2016, as well as the main lines contained in the budgets approved for 2017.The publication includes in this opportunity a revision to the main indicators related to the fulfillment of the Sustainable Development Objectives 2030 -ODS 2030- and raises the urgent need to make progress in a new fiscal agenda that allows the effective attention of these commitments in the short term.
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.
From 2014 to 2015 the size of central governments remained constant at an average 18.5% of gross domestic product (GDP).
From the introduction of the report: "Macrofiscal Profiles: 6th Edition" by the Central American Institute for Fiscal Studies (Icefi):
2015 proved to be a period of low tax advance for the Central American region. On average, the size of central governments remained constant compared to 2014, at 18.5% of gross domestic product (GDP). However, not all nations maintained this trend in the same way. While the governments of Nicaragua, Costa Rica and El Salvador, some of the largest fiscally in the region, continued to increase their participation in the economy, reporting increases of 1.5, 0.7 and 0.7% of GDP, respectively, the Government of Guatemala - one of the smallest in the world became even smaller, being reduced by 1.2% of GDP. For its part, the Government of Honduras reported a small decrease of 0.2% of GDP, fully converged with its policy of fiscal austerity, while that of Panama had a transient contraction of 1.4%, reflecting a reorganization established by the new administration and that, according to the plans for 2016, will be reversed in full.
The new legislation extends the tax benefits enjoyed at current export processing zones, to free trade zones in other sectors such as logistics, outsourcing and agricultural exports.
As a measure to discourage smuggling, the taxable limit for withholding income tax on the export of live cattle has been reduced.
The Federation of Livestock Associations of Nicaragua (Faganic) welcomed the decision to reduce the limit for incurring income tax, believing that it will be an incentive to reduce smuggling of cattle and allowing more to be exported through the formal market.
If Central America does not strengthen the institutions that ensure a stable legal framework and full respect for contracts, foreign investment will not come and national investment will go to other countries, no matter how many incentives and tax exemptions are offered.
If free zones -with their tax breaks and other privileges- are good for the economy, why isn't the entire country made into a free zone?
EDITORIAL
Why not provide companies founded with Central America capital the same benefits and privileges enjoyed by foreign firms operating under free zone regimes? The job creation and contribution to the economy that can be made by companies in free zones because they enjoy these privileges should be able to come from business founded with Central American capital as well, which in contrast to foreign firms, have to deal with excessive regulations and bureaucracy in the States of Central America.
The Executive has submitted a reform bill to extend tax benefits for investments in renewable energy projects until January 2018.
Among the tax incentives that exist for investment in renewable energy is exemption from the "... Import Custom Duties (DAI), Value Added Tax (VAT) and Income Tax (IR). "
The problem with income tax exemptions is that they favor high-return projects that would probably have been made anyway.
From an IDB document entitled "The effectiveness of tax incentives: The case of export processing zones in Costa Rica, El Salvador and the Dominican Republic".
Introduction and Summary
Policies encouraging investment make use of a variety of instruments. On the one hand, there are reductions in the tax burden on companies, such as development loans, import protection and export subsidies and, on the other hand, government measures aimed at correcting information externalities or coordination problems that may prevent a company from accessing new markets or developing new technologies by itself.
An agreement has been made to postpone until May 25 the effectiveness of various lists of tax breaks for the purchase of raw materials in order to work on a single document and add new products.
At a meeting between representatives of the government and the private sector it was agreed to extend the validity of the lists for tax exemptions in order to negotiate within that period the inclusion of other products and the creation of a single document. It was also agreed to remove fines for importers starting from 1 April.
A hotel in Estelí is part of the projects that will benefit from the tourism incentives approved by the Nicaraguan Institute of Tourism so far this year.
From a statement issued by the Nicaraguan Institute of Tourism (INTUR):
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