El Salvador Firms Want Tax Law Clarification

by Mike Godfrey, Tax-News.com, Washington

17 August 2010

The El Salvador Chamber of Commerce and Industry is seeking consultation on two new taxes proposed in a tax simplification bill aimed at the black economy.

Small traders are to be brought into the tax net with a special micro-tax (REMI), to be collected by regional authorities and mono-tax or monotributario (REM) aimed at the black economy. The two taxes would be applied to small traders in the place of VAT and income tax, but traders would have the option to pay normal taxes instead.

REMI is aimed at micro-businesses with monthly income of less than USD1,250 and a daily record of sales and purchases is required. For monthly income of less than USD600, a flat tax of about USD110 is charged.

For traders with a monthly income of up to USD4,167, REM would be applicable at a rate of between 8% and 10% on gross income.

The government estimates that at least 130,000 more “informal” traders would enter the tax system as a result, allowing them, among other benefits, to set up a credit record.

Pedro Hernandez, president of the National Traders Association (CNV), said that REM would affect the most vulnerable sectors of society. "This is an assault on the economy of the poor," he said. Hernandez added that he was open to discussing the issues with the ministry of finance.

Jorge Daboub, president of the Chamber of Commerce, said the law deserved to be evaluated, but was concerned about the practicalities of implementation.

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