Honduras: Tax reform up for debate in Congressdumaslex
Honduras: Tax reform up for debate in Congress
The government’s proposed tax reform will dominate public discourse in Honduras in the upcoming weeks. The reform aims to address several key issues, including eliminating laws that grant tax exemptions, such as the Free Zones Law and Temporary Import Regime, among others. It also seeks to transition from a source income-based taxation system to a Worldwide Income taxation approach. It also advocates for the removal of banking secrecy for tax authorities and introduces a monitoring system for high earners, enabling closer scrutiny by the tax authority. Two new investment promotion mechanisms are proposed: one focused on job creation and another aimed at establishing a Free Zone (Zona Franca).
The fate of the proposed tax law now rests with Congress, which is responsible for evaluating its potential advantages, drawbacks, and risks. The ongoing deliberations surrounding this legislation have shed light on the profound societal divisions prevalent in Honduras, notably on income inequality and political polarization. Furthermore, these discussions have sparked broader conversations regarding the government’s role in fostering social and economic progress and the intricate balance required between fiscal responsibility and social equity.
The project has ignited vigorous debate, and now, much like other crucial matters, distinct divisions have emerged, leaving minimal space for a middle ground. It seems that either one must fully endorse the proposal or face being labeled an enemy of the government, accused of disregarding the needs of the poor or, favoring corrupt groups that benefit from the existing system. This rigid stance complicates the ability to engage in a civil discourse surrounding an issue that demands a calm and analytical approach.
COHEP, the entity representing the private sector, released a report outlining the disadvantages of the law and offering modifications. They characterize the legislation as a «huge tax package,» asserting that it threatens economic growth. Among their concerns is the removal of tax exemptions on agricultural equipment and machinery, which they argue could have far-reaching repercussions on the general population by driving up prices of essential goods, including food. The proposed measures aim to eliminate banking secrecy and establish a list of high earners have sparked grave concerns about the security and privacy of sensitive financial information. These apprehensions underscore the need for careful consideration and safeguards to protect individuals’ personal data and financial privacy.
Honduras faced significant repercussions from the pandemic, experiencing disruptions in economic activities and a decline in government revenue. Supporters of the proposed tax law argue that its implementation will enable the government to generate the necessary funds to strengthen social programs, invest in infrastructure, and gradually reduce the budget deficit. Simultaneously, the government contends that the law serves as a mechanism to curb abuses associated with the current special regimes while providing a means to increase revenue that can be allocated to public projects. Public officials assert that the law will empower the administration to close tax loopholes, enhance compliance, and eliminate the need for new taxes.
Our firm reviewed the proposed reform; unfortunately, we do not find any tangible benefits for the average citizen. We have expressed concerns in numerous interviews and published articles, highlighting the absence of crucial provisions such as reducing the sales tax and eliminating the burdensome “security tax” imposed on banking transactions. If approved, we will also conduct a thorough analysis, ensuring a comprehensive assessment of its legal implications, economic factors, and the interests of our clients.
Author: Rodolfo Dumas Castillo