Panama's new tax regime is getting close to approval by the assembly and the tax that will affect everyone the most is the ITBMS tax that will most likely go from 5% to 7%. This is a tax on all services in the country. We also have the ITBM tax which is 5% of all goods sold. Neither of these taxes were in existence about 5 years ago. As I have harped on in the past, once a tax on goods and services is established, it is a simple matter for the state to just increase the rate to get more revenue. The same holds true for the coming country-wide real estate tax. Yes Panama will soon get great credit ratings entitling it to be able to borrow money at reduced rates, all because it has shown it can efficiently collect taxes from its citizens. More borrowing power means more debt which means higher taxes and so on.
What effect does that measly 2% have on the average Jose? It will cause the cost of both goods and services to increase significantly because there is a multiplying factor. Every middleman along the way must charge the 7% so the costs can multiply fast. The government will come out with statistics showing inflation and blame it on currency devaluation, but the fact is that the purchasing power will decrease because our silent, but powerful partners in all our lives wants a larger cut of the action. Not that it isn't for a good cause of course. They need to fund the many infrastructure projects they have planned and promised. But, as most of us know, the government does not produce anything but red tape and inefficiency, so the burden will fall on the populace to shoulder the costs of these promises. But the frog is in the pot and the water is turned up ever so slightly that he may not jump out.
Mandated increases in minimum wages happened in January and the new tax reform will be added very soon. Of course with taxes being increased in every country around the globe Panama may still be more attractive, but how I long for the good old days of only 5 years ago.
Excerpts from La Prensa;
Edith Castillo Duarte
[email protected] [email protected]
Once awarded the bid for the Metro, this year the Government will have to pay about $ 250 million to the winning consortium as a first payment of the work.
It is expected, according to state projections, that these funds are raised the increase to 7% transfer tax of movable (ITBMS), a point which was adopted yesterday in the first debate on the Finance Committee of the National Assembly.
Minister Alberto Vallarino, following a meeting with the editorial board of this newspaper, reported that it was considering the possibility that this tax hike should be staggered, but the numbers do not give to meet all the commitments they have for this year tax.
Only in the construction of the subway, which represents an investment of 500 million thousand dollars, should be given an advance of 15% and 20% once construction award, scheduled to begin in about five months.
"We need to increase this tax-ITBMS-to meet a range of infrastructure works that have already been tendered and others are by tender, the most important of the Metro," said the minister.
Meeting with Fitch
The approval of the tax reform package would also be good news that the Government would give the rating agencies, who see the tax changes as a plus for Panama to achieve investment grade this year.
It is estimated that after the changes to the tax bill on first reading, second and third can proceed at a rapid pace and that the initiative becomes law this month.
Vallarino will meet with Fitch Ratings on March 19 in New York, the date on which it is expected that tax changes are a subject passed.
Later this month could get to Panama by the representatives of Standard & Poor's and probably in the month of May Panamanian officials also meet with the rating agency Moody's Investors Service.
Standard & Poor's in November the country revised the outlook from "stable to positive, thus recognizing the robust outlook for economic growth and improved fiscal scenario that could strengthen the credit profile of Panama.
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