Tropiland

Here is a great piece of news for all who live, work and have invested in the Los Santos province in Panama (like yours truly), coming straight from the Ministry Of The Presidency web site.

Martinelli’s government will be investing $107.5 million (this year alone) in the province of Los Santos, according to vice Minister of Finance Dulcidio De La Guardia, who made the announcement  during the celebration of the Cabinet Council held in Las Tablas.

Since Los Santos is  a region dedicated to agriculture, the bulk of the investment will be directed to this sector , some $38.3 million, mostly directed to agricultural management, agriculture activities and construction. .

In the transportation sector, projects will be funded with  o$24 million, $5 millions of which  are being devoted to rehabilitation and maintenance of the road between Guarare-Las Tablas, and rehabilitation of a section of the road Macaracas – Sabana Grande, an estimated $4 million.

Amother important project is the expansion to four lanes of the road over the river La Villa. The project  could be completed this year.

The government also plans to build and rehabilitate secondary roads throughout the Los Santos region, so that the province is left with a road network that will lead to effective marketing of all that the area has to offer from a tourism and business perspective.

Regarding education, the Government allocated  $1 million towards implementing  aggressive scholarship programs.

With regard to Social Program investments,  $12 million (representing 13.6% of the total cost) will go towards the completion of  60 housing  projects.

Well…60 housing projects? Really? I am all for development and modernization and especially all for social development, but 60 housing projects in a province (or an area) that represents only 1/15 of Panama’s population sounds a bit of a pipe dream to me.

Anyhow, it looks as though Martinelli’s government is taking some steps in decentralizing Panama and start developing rural areas with long-term rewards in mind.

Panama has officially its very own Ministry of Public Security, created by the  Ricardo Martinelli’s government, making good on a campaign promise to re-think the country’s security issues .

The new  ministry is directly related to U.S. policy to control drug trafficking between Colombia and the U.S. Shakira’s homeland is now the largest producer and exporter of cocaine in the world.  U.S., in turn, consumes more than 50 percent of all drugs produced worldwide.

The new ministry will also have responsibility to facilitate data transmission  and operational support to the US security  forces in Colombia.

The new ministry will control all the repressive forces of the Panamanian State. To that effect it’ll combine the activities of the National Police, Special forces of the Presidency, Air Force and Navy, the Judicial Investigation Directorate (Panama’s FBI), as well as, Immigration and Border Forces. Some U.S. advisers suggested that the Attorney General’s Office  be put to the new ministry.

The new entity, which is part of the Cabinet of President Martinelli, replaces the old Defense Forces (FDP) created by Noriega in an effort   to concentrate all the repressive law enforcement institutions, back in 1983 .

The centralization of Panamanian law enforcement, allows the U.S. to keep tighter control on the activities of government.  Today, Panama allows a total of 11 naval bases on both the Atlantic and Pacific to be used by small patrol boats and U.S. warships.  It also draws funds, technology and advice from the U.S. to patrol the border with Colombia.

The new ministry is headed by Jose Raul Mulino, president of the small party the Patriotic Union, a member of the governing alliance.  In the new arrangement  the former Ministry of Government and Justice, which led the fight against crime rise in Panama, merges with the Ministry of Interior. Everything indicates that this new branch will engage social input by means of  community boards, firefighters and the Banda Republicana.

While the U.S. has very clear security goals in Panama, the government of President Martinelli has not decided its policies yet.  To date, after 10 months in the presidency, it has managed to keep a high profile  favored in the polls.  However, it has not really dealt with any public safety issues.

The recent collapse of the garbage collection system is a small indication of the problems the current government faces. Environmental policies, mining and tourism tend to accumulate contradictions that can explode at any moment.  Martinelli seems more interested in turning the country into a dubious investment center.

In this context, his government  has faced workers and the middle class and more recently questioned the legitimacy of organizations formed in the 1990s.  popular subsidy programs the partly inherited from the previous government, have allowed it to retain some credibility. But it appears that the Ministry of Public Security will bring into question the legitimacy of the occupants of the Palacio De Garzas (Panama’s White House).

A number of existing trade agreements, especially the Central America Free Trade Agreement (CAFTA) are a nightmare for importers and exporters alike.

I already posted on why CAFTA will be detrimental to Panama. let’s now examine why CAFTA is not what its name implies from the US point of view.

Importers are burdened with regulations that are restrictive and expensive to implement, while exporters can’t sell their goods in the United States unless they comply with the regulations and other stipulations.

Economists categorically state that there are no “truly free” free trade agreements. All free trade agreements are managed trade agreements. Underlying economic theory demands that supply and demand is not restricted by government market intervention. Fundamentally, managed trade is protectionist trade.

Better yet, to accurately reflect their true nature, all of them [free trade agreements] should be called Managed Trade because on each page within every agreement are quotas, stipulations, and byzantine clauses that rival the federal tax code.

On the other hand, importing from countries not governed by free trade agreements with the United States is cheaper and easier, as they are not governed by costly and unwieldy regulations and the United States operates under an open door trade policy.

Rules on tariff liberalization, place of origin, restrictive standards and controls, consumer protection requirements, custom duties, labor standards, and intellectual property rights make some free trade agreements nightmarish.

Trade conflicts, non-tariff barriers, and dumping do not disappear; they often go underground, which makes detection and cooperation more difficult.

To benefit from CAFTA, importers must comply with specific custom regulations and provide detailed information that is extremely time consuming to put together and often difficult to ascertain.

The importer must conduct regular factory visits to their foreign suppliers’ manufacturing locations to make sure that the goods for which they claim trade preferences are legitimately entitled to them.

During the four years ending in 2008, imports from Central America to the United States rose by only 10 percent from roughly $13 billion dollars, while exports to the region from the United States soared by 48 percent to slightly above $24 billion.

Not only CAFTA, but any trade agreement is beneficial to the corporate world, as it is not only easier to outsource jobs, but cheaper to import products and save a great deal on import duties, affecting the corporate bottom line positively.

The corporate world envisioned that “CAFTA would lower the cost of importing from the five countries of Central America as well as the Dominican Republic,” according to the KW report.

However, CAFTA and many other trade agreements have a glitch. Any U.S. corporation, no matter where it is based, can sue the government of a CAFTA country outside U.S. jurisdiction, if any regulation would put a dent into its operations or attack its interests in the region.

“The fundamental problem is that, on many issues, CAFTA would give multinational corporations more power than our [Costa Rica] government,” according to a 2007 article on the Economic Policy Institute Web site by Ottón Solís.

Current CAFTA members include Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua.

Panamanian Secretary of Commerce and Industries, Roberto Henríquez, has come on record on Panama’s TVN News to confirm that there was a plan to kidnap the president of the Republic, Ricardo Martinelli.

Henríquez revealed that two agents of the System of Institutional Protection , Panama’s Secret Service, allegedly taking part in this plan against president Martinelli.

The agents “were seemingly approached and compromised by a foreigner of Puerto Rican nationality.

Secretary  Henríquez added that after kidnapping there was an interest “of trasporting him physically (probably out of Panama) through some unofficial group”.

Investigations on the subject continue and have not concluded yet and, consequently , there can be more ramifications as the story is put together.

Henríquez said that the information in his possession allows him to ensure that “this plan is completely true”.

The president of the Republic, Ricardo Martinelli, expressed today his support to the Secretary of the Treasury and Finance, Alberto Vallarino, after the accusations brought forth by   Secretary General of the Democratic Revolutionary Party (PRD), Mitchell Doens.

Martinelli vouched on RPC Radio for Vallarino as a person with integrity, honesty and capable and that “he has demonstrated all those qualitites during his life”.

For Panama’s commander in chief it is deplorable what  “this  canard” (meaning  Doens)  brought forth and  his accusations will die out “because they have  neither arguments nor justifications”.

Doens, delivered to Attorney general’s office  today  papers that verify (according to him) that minister Vallarino must be investigated by a supposed judicial link in Costa Rica for money laundering.

Is this one of PRD’s latest tricks to gain publicity and hurt the present administration, or does the whole story have merit? We will see in the future.

Latin-American Index of Budgetary Transparence of 2009, presented this week in Mexico, gave Panama a rating of 50 out of 100, ten points below the minimal qualification index.

The study, carried out by Fundar Center of Analysis and Study, a  Mexican nongovernmental organization (NGO),  indicates that Panamanians do not trust their budgetary processes and that the Panamanian governments neither boost nor promote civil participation in the planing of control measures for state finances .

“A lot of in budgetary matter — he adds the report — it is not this public information useful to establish with clarity an account capitulation process, for being incomplete and confused. Also, one is not provided with guarantees of access to information about expenses and income of the public sector”.

This study  is done every two years by Fundar and aims to establish  the models that different Latin-American governments have to pursuit and apply budgetary norms, and measure the transparency levels  in the handling of their finance.

The writing is officially on the wall. Panamanians and everyone that lives and does business in this republic demand a more transparent budgetary system that incorporates its business forces in the policy making and ensures fair resource and money allocation.

As of last September, Law 49 (passed by Panama’s National Assembly and enacted into law by president Martinelli) is the new tax law of the land (Panamanian territory). As promised, the law implements long anticipated reforms in Panama’s taxation protocol.

General property appraisals by the state and capital gains tax on sale of properties are two areas that were revamped by this new Panama tax law.

Under the new law, condo taxable values are comprised of two components: the value of the land on which the condo building was contracted and the value of the improvements made on the condo.  The value of the land is taxable and distributed evenly upon all condo owners. As far as exoneration for 20 years goes, all condos now pay taxes both on land (reagrdless of being under 30K or not) and improvenents.

What follows, is a general overview of Law 49 presented here with the help of the law firm of Patton, Moreno & Asvat:

A. Franchise Tax for Corporations.
- Payments of annual Franchise Tax of B/.250.00 at incorporation and B/.300.00 in subsequent years will apply
to all national and foreign juridical persons, except for nonprofit associations.
- It is established the possibility to restore the legal personality of a corporation dissolved due to the lack of
payment of the annual franchise tax for a continuous period of 10 years, paying a fine of B/.1,000.00 during
the 3-years liquidation period.

B. Income Tax on capital gains for the transfer of immovable property.
- Base tax of 10% over taxable income from the sale of immovable property is maintained when the sale is not in
the ordinary course of business of the taxpayer. However, the taxpayer will be required to pay a sum
equivalent to 3% of the total value of the transfer or the cadastral value, whichever is greater, as an advance
on the income tax and may choose to consider this 3% as the final income tax payable in respect of profit.
- The taxpayer may request a refund in cash or the recognition of a tax credit transferable to other taxpayers,
when 3% of advance tax paid is greater than 10% of the profit from the sale.
- The taxpayer is given an opportunity to update the cadastral value of its property that will be used as base cost
in case of sale, before June 30, 2010.
- The properties for agricultural purposes endorsed by the Ministry of Agriculture pay a single, definitive rate of
3% instead of 5%.

C. Income Tax on capital gains for the transfer of securities.
- When the advancement of withholding tax (5%) exceeds the amount resulting from applying the 10% rate on
gains obtained from the sale, the taxpayer may request a refund in cash of the surplus or a tax credit for the
payment of taxes administered by General Revenue Department, which can be transferred.

D. Provisions applicable to companies established in Free Zones.
- Activities that can be considered as offshore operations within the Colon Free Zone and other free zones are
limited to billing services, repacking and similar, when they produce effects abroad. Commissions, storage and
warehouse services, leases, internal movement of goods and cargo are considered local activities.
- Companies located in any free zone of Panama shall pay the dividend tax or participation fee at a fixed rate of
five percent (5%) of the amounts distributed to its shareholders or members, regardless of the origin of the
source.
- It’s introduced a new obligation to withhold and remit to the Treasury 10% of 20% (i.e. 2%) of net profits after
taxes, to companies established in any free zones, when there is no distribution of dividends.
- It provides for imprisonment of 1 to 3 years for crimes of smuggling and customs fraud and 4 to 6 years in case
of recurrence, and fines of five to ten times the value of the good at illegal if it exceeds B/.50.000.
- It is clarified that the new loans granted within the Colon Free Zone shall be subject to payment of the Special
Compensation Fund Interest (FECI).

E. Property Tax.
- To calculate the tax base it shall be considered the highest value of any of the following:

1. the valuation of the property fixed by the Directorate of Cadastre,
2. the price set in any transfer of the immovable property, whether or not titled, including any sale, donation, payment in kind, prescription for the acquisition of TAX UPDATE: LAW 49 OF 2009 dominion, auction or any other form of transfer of a property that is not covered specifically in this section, and
3. the appraisal in inheritance proceedings.

- The alternative tariff rate for property tax shall be 0.75% on properties whose value of land and improvements does not exceed B/.100,000 and 1% for values above B/.100,000. The rate is not progressive. To qualify for this rate the taxpayer must file an affidavit on the updated value of the property until 30 June 2010.
- It is eliminated the possibility for taxpayers to request general or partial appraisals and subtotals, granting this power exclusively to the Directorate of Cadastre, which will order them ex-officio.
- Property with a value of land and improvements not exceeding B/.30,000 are exempt. Save for immovable property intended for social housing, over this amount does not apply the exemption to the land of estates subject to the Horizontal Property Regime, whose condominiums are attached vertically.
- A new table for calculating property tax subject to the Horizontal Property Regime is established:

• 1.40% for a tax base up to B/.20,000
• 1.75% for the tax base up to exceeding B/.20,000
• 1.95% for the tax base up to exceeding B/.50,000
• 10% for the tax base up to exceeding B/.75,000

- Improvements for residential use with a value up to B/.80,000 will be exempted from land tax for 20 years.
- New conducts are typified as tax evasion relating to property tax, such as the simulation of legal acts to reduce the cadastral value or total or partial failure to pay the property tax for itself or for another person. Tax evasion for these concepts will be sanctioned by the Department of Revenue by a fine not less than five (5) times or more than ten (10) times the amount defrauded or with imprisonment of two (2) to five (5) years.

E. Tax on the Transfer of Movable Goods and the Rendering of Services (ITBMS)
- Are subject to the payment of ITBMS: (a) the commissions from transfers of negotiable documents and securities in general, (b) the payment of commissions from banking and/or financial services rendered by entities legally authorized to offer these type of services, (c) the commissions or retributions paid to persons dedicated to real estate and goods brokerage, (d) the professional services to be provided to personas domiciled abroad, (e) leases of property destined for residential use for terms less than 6 months, (f) commercial fixed-line telephony, and (g) legal services provided to international trading vessels.
- On the other hand, the following services are considered exempt from this tax: (a) freight, (b) fixed-line telephony for residential use, (c) cargo loading and unloading operations, transfer in or between the ports and ancillary services rendered to the cargo in ports, (d) the repair, maintenance, cleaning and ancillary services rendered to vessels in transit within the territorial waters, and (e) commissions earned by travel agencies.

F. Tax on Notice of Operations.
- It rises from B/.40,000 to B/.60,000, the maximum annual amount of tax payable in respect of tax on Notice of Operations, at a 2% tax rate on the company’s capital. In the case of companies established in free zones, the tax basis will be 1% with a maximum of B/.50,000 annually.
- Are exempted from the requirement to obtain a Notice of Operations only the companies licensed as Regional Offices of Multinational Corporations and companies that are operating under special regimes, applicable to areas developed through the award of international processes for the selection of contractors.
- Financial institutions regulated by Law 42, 2001 shall pay a 2.5% annual tax on their paid capital as of December 31st each year, which will not exceed in any case B/.50,000.00.

G. Modifications to Law Decree 2 of 1998.
- It is clarified that the hotels which aim for a contract to operate gambling halls, must comply with luxury standards, according to international rules for four-star hotels.
- The Goodwill payment for new Managers and Operators of Full Casinos is fixed in B/.1,000,000 and B/.500,000 for Slot Machines’ Halls type “A”. The obligation to pay the Goodwill to the Gaming Control Board is established retroactively.
- Slot Machines’ Halls type “A” will pay to the State in a phased manner from January 1, 2014, the 22% of their gross income, versus 10% currently paid.
- Full casinos will pay 15% from January 1, 2012, versus 10% currently paid.
- It is regulated the transfer of company shares and the procedure for the appointment of officers of the companies that have contracted with the Gaming Control Board.

H. Others.
- It’s established a general principle by which any legal person requiring the issuance of a Notice of Operation is obliged to withhold the dividend tax regardless of source of income. For dividends from a Panamanian source,
the current rate of 10% is maintained and for income from foreign source or arisen from export operations, withholding shall be 5%.
- Article 733-A of the Tax Code, which provided for an exoneration from the withholding of 10% over the capitalization of earnings is repealed. Accordingly, retained earnings in a fiscal period that are capitalized in any subsequent period will be subject to payment of dividend tax and complementary tax.
- Limited liability companies shall pay taxes as legal persons, since it is removed the article that allowed to pay taxes by the partners in proportion to their equity participation.
- Will pay the rate of 1% of FECI the loans secured entirely by deposits and fixed-term savings held in banks located in Panama. On the other hand, loans agreed as automatic loans in life insurance policies secured by the value of the mathematical reserve or cash surrender value, which will be used to pay premiums for the same insurance life policy, are excluded from payment of the FECI.
- Selective tax on cigarette consumption is increased from 32.5% to 50%, also establishing that 40% of such tax is intended as a contribution to the National Cancer Institute, another 40% to the Ministry of Health and the remaining 20% to the Customs Authority to prevent smuggling of tobacco-derived products.
- It is typified as a crime of smuggling the possession or introduction of tobacco products to the national territory without having paid the corresponding taxes on their import or not complying with health regulations.

The presidents of Panama, Ricardo Martinelli, and Costa Rica, Oscar Arias, signed today a bilateral agreement  that affirms the two nation’s relationship . The agreement provides a boost in commerce and paves the way for integration in the region.

“This association with Costa Rica is going to bring big benefits to Panama, not only in the culturaly, but in many other aspects “, indicated Martinelli in a press conference following the signing of the agreement, which took place in the frame of an official visit of Arias to Panama.

The Panamanian president indicated that he discussed  matters pertaining to the cooperation in technological issues and projects like a Panama-Costa Ricarailroad  or the electrical interconnection of the two countries.