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Guatemala needs to raise fiscal revenues to at least 15 percent of gross domestic product (GDP) in the longer term to accommodate higher social and infrastructure spending, and to support efforts to reduce crime and corruption, the International Monetary Fund (IMF) has said.
The Government recently introduced a package of revenue raising proposals to Congress. The proposals are expected to raise GTQ5.8 billion (USD770m, or 1.1 percent of GDP) by increasing the corporate tax rate to 29 percent from 25 percent, raising some mining royalties to 10 percent from one percent, and hiking cement and fuel distribution taxes. The Government also plans to raise personal income taxes, which will be partially offset by allowing taxpayers to submit VAT receipts for income tax deductions.
According to the IMF's 2016 Article IV consultation report for Guatemala, raising revenue through the personal income tax (PIT) could prove less distortive and more equitable than through the value-added tax (VAT). The report said that raising one percent of GDP in additional revenue through VAT would depress GDP by almost two percentage points over five years, compared to less than one percentage point with a similar effort through PIT.
The report called for further measures to strengthen the Tax and Customs Authority (SAT) with a view to reducing tax evasion.
A revenue level of around 15 percent of GDP is well within reach with Guatemala's tax capacity – the maximum level of tax revenue that a country can achieve given its current fundamentals – esimated at 20 percent of GDP, the report said.
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