Panamanian Business Fears Torrijos Tax Proposals

by Leroy Baker, Tax-News.com, New York

18 January 2005

Business leaders in Panama have warned that the new fiscal reform package proposed by the administration of President Martin Torrijos, which includes tax hikes for businesses and wealthy individuals, will have a negative effect on the country’s economy.

In order to generate an additional $350 million per year in revenues to tackle a yawning 5.2% of GDP budget deficit, Torrijos is planning to impose a 2% tax on business revenues and tighten tax laws to see that Panama’s wealthier citizens pay more in tax.

However, Raul del Valle, president of Panama's chamber of commerce, told Reuters that the revenue tax would merely serve to act as a disincentive to investment, threatening overall economic growth.

"This is a barrier to attracting investment to Panama," de Valle cautioned.

"It is a highly misguided measure that is going to affect businesses that depend on reduced profit margins,” he added.

However, Torrijos is firmly of the opinion that some taxes must go up if the country is to meet its debt obligations.

In a live television address broadcast last week, the President informed business leaders that “drastic austerity measures” are necessary.

According to reports, these measures may seek to extract more tax revenues from the Colon Free Trade Zone and reduce tax breaks on foreign income.

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