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Honduras Raises Its VAT Rate

by Mike Godfrey,, Washington

17 January 2014

Honduras has raised its headline VAT rate from 12 percent to 15 percent, with effect from January 1, 2014. This came through Decree No 278/2013, which included many other tax measures in order to increase tax revenue.

About 1,000 people have reportedly taken to the streets in order to protest against the recent tax rises.

Regarding VAT itself, this painful move hasn't come without problems. Not only has the VAT rate been hiked, but also a number of VAT exemptions have been removed by the reform. In addition, the VAT rate for alcoholic beverages is now 18 percent.

VAT exemptions previously concerned about 300 types of items. As of now, only 72 of these products are still not subject to VAT, restricting exemption to the most basic items, such as, among others: milk; fruits; vegetables; fish; chicken; coffee; white cheese; eggs; sugar; flour; bread; corn; and rice. One piece of good news for consumers though: this is better than the smaller list of 35 items initially planned by the Government.

Although this list shows the Government has tried to spare the poorest, Hondurans' already low purchasing power is likely to be badly affected. In fact, the tax reform introduces stiff tax rises for other previously exempt essential items, such as energy.

From a practical point of view, Honduran retailers will have to systematically review the receipts they issue. This is because these receipts are pre-printed and they are based on the previous 12 percent VAT rate. Thus, retailers must manually apply the 15 percent rate on their receipts, and they will have to do so until they exhaust their existing stocks of receipts. Thus even from an administrative point of view, the VAT increase is proving painful.

TAGS: tax | value added tax (VAT) | tax reform | retail | Honduras

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