Friday, August 01, 2014

New taxes on rich in El Salvador

According to the World Bank, El Salvador has some of the lowest taxes in all of Latin America and the Caribbean, and these revenues are not sufficient to finance needed spending on social programs.  

Yesterday, the National Assembly passed a bill to increase tax collections from the rich and business.  From a Reuters report:
Lawmakers in El Salvador approved a tax reform bill on Thursday that introduces a minimum income tax targeting loopholes used by the rich, as well as a imposing levy on financial transactions. 
The measures were approved with a slim majority of 44 votes of the 84 cast with the backing of lawmakers from the ruling leftist Farabundo Marti National Liberation Front (FMLN) with help from the moderate right wing GANA party.... 
The centerpiece of the bill introduces an alternative minimum income tax of 1 percent on a taxpayers' net assets. 
Lawmakers complain that big companies and the rich evade taxes and are not paying their fair share under the current income tax structure that has a maximum rate of 30 percent. Taxpayers will have to calculate their tax burden under both rules and pay whichever is higher. 
The bill also introduces a 0.25 percent tax on certain financial transactions greater than $1,000, with some exemptions such as ATM withdrawals and money transfers used by the roughly 2 million El Salvadorans living in the United States. 
The bill also establishes a tax on luxury homes and targeted the nation's ultra-right wing newspapers. The bill eliminates exemptions newspaper owners had enjoyed since 1950.
Reaction by business groups and the rich to the passage of the tax measures was loud and predictable.  A national business association pledged a court challenge.  The right wing ARENA party demanded that the president veto the bill and asserted the tax measure had only been passed as part of a vote swap, where the FMLN agreed to let GANA's candidate obtain the presidency of El Salvador's Court of Claims in return for GANA votes for the taxes.  A columnist for the right wing El Diario de Hoy called the tax measures, an "enormous dead weight" on the economy.

For his part, president Salvador Sánchez Cerén thanked legislators for approving the measure which he said would go to fund the social and economic development of the country.


Michael Johnson said...

very good this law was passed and especially going after Diario del Hoy, only their comic section I read they suck bad

Mario Cornejo said...

As long as those funds collected by the government touch areas in need (e.g. social initiatives), then the purpose is met, but if instead those funds serve the purpose of filling pockets of corrupt government servants then the people of El Salvador should not agree to it.

It also makes one wonder why were exclusions such as Alba Petroleos, why is it that there is no control from government with expenditure (such as travel which seems high based on recent figures disclosed in news), or internal audits to ensure that funds spent are being maximized and are creating good for the people.

It also makes one wonder how elderly will cope with such taxes, there are people who have reached an age when they are no longer productive (whether companies think so or government does not create an environment for them to produce), hence will not be able to fulfill fiscal requirements and will find themselves in trouble.

It seems that the idea of collecting taxes is great, to tax "the rich", but what about controlling how much the government spends, how about austerity, how about taxing "informal business", how about creating an environment for everyone to grow? seems as it is a unilateral view, with a political agenda behind it.

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