One of our reliable attorney friends, Alvaro Aguilar, has put out a blog post updating the latest information regarding the 20 year tax exoneration. It is an important read because there are some technicalities in the law that if implemented by the government, could cost you. There also appears to be a lot of typical confusion in the way the law is written. Clearly they are trying to separate those willing and able to pay the tax from those who can't or won't.
A little history is in order.
It is important to understand that we in the interior of Panama have never seen a property tax assessor. In the past when you bought a piece of property you would pay a transfer fee based upon an agreed amount between the parties, and it was always below the $30k property tax threshold, no matter what was really paid for the land. In many cases the land was in a Panamanian corporation and buy and sell agreements of shares are a private matter protected by the state, both here and especially abroad. No one really knew what people paid and up until we gringos arrived and a new canal expansion was approved nobody cared. The seller did not want to pay a higher transfer tax at 2% of the price stated and the buyer did not want the value to be over the $30k to avoid property tax on the land in the future. It was in everyones interest to keep those values low and there was no tax assessor to say otherwise. I was always amazed at how it was common practice to just arrive at a price and that is what would be used by the public registry, no questions asked.
Understand that up until a developer came to town and created a demand for the land by people from another world, the values of land in the interior were pennies a meter. The value was what an agricultural produce would justify. The best coffee land was about $12k a hectare and cattle land was maybe $2000 a hectare just 3-4 year ago.
Now that some land values have increased the government sees a new revenue source and wants to cash in. But it will be extremely difficult because most of the property in the interior is still worth only the value of cattle grazing, coffee or vegetables. Just because there is a Valle Escondido in the neighborhood, does not mean that all of the property in the neighborhood is worth what people are willing to pay there.
If we extrapolate land values based on one project in the area then all the land would be worth hundreds of times what it shows in the public registry. What happens when an assessor sends a tax bill to some of the local folk who have never had to pay taxes before? I see street demonstrations the likes of which have never before been witnessed in Panama. It is just totally impractical to try and apply property taxes in an arbitrary fashion and if you do so across the board, chaos will ensue. So what the heck are these guys up to?
You only have to look to the North to see that all tax collection is based on creating fear in order to get people to comply. Foreigners are used to playing by the rules and are fearful of the state and will comply because they have a lot to lose, including their right to be in Panama. Panamanians will not comply because they can't lose their right to be here and they know that any assessor who comes to town will be tared and feathered and run out on a rail. So what should you do?
My advice, when in Rome, do as the Romans.
