The Congress of Panama (Asamblea Nacional) passed a tax bill that (among other adjustments) includes a 2% increase in the Goods & Services tax (called ITBM in Spanish), from 5% to 7%. With this new law (Law 49) , the government seeks to “increase tax collection in $200 million a year”.Now, I understand this country’s desperate need to battle years and years of tax evasion and total luck of tax culture, but raising the most important and influential tax by 40% overnight will definitely not solve anything. I also happen to think that the Martinelli administration may have become tax “trigger-happy” and being so they may be loosing the forest for the tree.
Raising the Goods and Services tax may increase tax revenue fast but it will also have a significant effect on prices that, as is always the case, will be severely felt by the lower to mid income Panamanians. If every middle man from the production assembly line or farm to the final consumer raises their price by 40% (to compensate for this additional tax) you can imagine what this domino effect will do for the final retail prices.
There is a lot of work to be done in moving Panama forward, fighting corruption, developing tourism, expanding social programs, eliminating crime and so on. The current administration made a commitment to work diligently towards achieving these goals but I am afraid that the money needed is going to be shouldered by the average Jose and will not come through sensible fiscal allocation and programming.
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If a tax is raised from 5% to 7%, it is increased by two percentage points, right? Don’t those two points represent a 40% increase — 2 is 40% of 5 — from the original tax rate to the new tax rate? I don’t understand where the 27% increase, noted in the article, comes from.
Max,
You are, of course, absolutely right. It was a 40% increase and not 27% as originally quoted. It was an honest mistake that has, since then, been corrected. Thank you for the suggestion. it is nice to see our readers being sharp and observing like this. It keep me on my toes and help me become a better blogger. keep them coming.