Experts inside and outside the country warn that Nayib Bukele’s government speech that he will fight tax evasion and thus get a guarantee for the $ 1.3 billion loan he is seeking with the International Monetary Fund (IMF) is neither real nor sufficient .
El Salvador’s economic and social situation is very critical and for the government to reach an agreement with the International Monetary Fund (IMF) to obtain a loan of $ 1.3 billion will not be enough with the speech to combat tax evasion instead of raising taxes, economists warn.
“I can almost assure you that the Fund will not sign an agreement with El Salvador just with the idea of eliminating evasion; this is a super attractive speech if possible, but it simply is not. It has to establish fiscal commitments in income, spending and structure in the public sector necessarily, “Costa Rican economist Roberto Artavia, chairman of the board of directors of the INCAE Business School, warned in a recent television interview.
He added that “in an ideal world one would say that the idea of fighting tax evasion is the happiest, because it means we don’t charge anyone. The IMF is never going to accept that: first, because the the bulk of tax evasion comes from the informal economy, it comes from smuggling, from activities that are already illegal … “.
According to the International Monetary Fund may lead to an increase in VAT
Artavia’s analysis stems from the fact that the government has been in negotiations with the IMF since the end of last year to lend it money, but it is known that an agreement with this body entails rigid fiscal measures, such as an increase in VAT. , for example.
Although according to the Minister of Finance, Alejandro Zelaya, the government’s strategy will be to combat tax evasion and not raise VAT.
“VAT is not going to increase, this part is not included in the agreement, what we will do is fight tax evasion and this the IMF takes as a tax measure for the adjustment, “Zelaya said on March 17 this year.
The government projects a collection of Value Added Tax (VAT) of $ 2,643.4 million, a figure that according to the analysis of the Salvadoran Foundation for Economic and Social Development (FUSADES) is impossible to achieve and which has overestimated $ 603,800,000 in revenue.
Faced with this, Salvadoran economists agree with Artavia that the Executive will not be able to reach an agreement with the IMF with this strategy.
“The government says nothing about how it will do to combat the evasion of those who do not declare, I think it is not focused on combating smuggling and tax evasion. To think that in a year they will collect 3 or 4 points from the “GDP, based on a methodology of pursuing those who already pay taxes, will be minimal,” said economist Luis Membreño.
Economist Rafael Lemus also pointed out that the IMF may believe in the government that it is willing to develop good practices or a successful fiscal adjustment, but seeing the non-compliance could suspend the agreement, should it materialize. ho.
“And this is also mentioned by Dr. Artavia when he says he could assure that there will be no agreement with the Fund if the whole government plan is to attack tax evasion; he is telling them that this is not credible or consistent. The tax problem of El Salvador is much larger than that of Costa Rica in debt and imbalance, “said Lemus.
Regarding whether he sees it possible for the Fund to ask the country to set new taxes, Lemus considered that the discussion could go further in reducing spending.
“The Fund warns that the size of El Salvador’s adjustment is much larger than that of Costa Rica and that this country was asked to take revenue and expenditure measures, and with the Government of El Salvador it will be the same, as well. that doesn’t come down to saying he’s going to chase evaders, ”Artavia noted.
In its analysis, Artavia has considered that if it is to establish taxes in the country, it must be a well-thought-out structure and not just to raise them.
“In El Salvador, relatively, the tax burden will be greater, to say: taxes on wealth, not on production; taxes on pollution, not on investment; taxes on idle capital, not on productive; and in this sense we must not raise taxes just to increase, but focus on taxes that generate additional income without harming the productive impulse, or the investment that the country requires, “said the expert costa -riqueny.
Economist and former finance minister Manuel Enrique Hinds said tax collection in El Salvador “is not bad,” but warned that negotiations with the IMF could go further for spending transparency and reduce them, than to raise the tax burden.
But Membreño pointed out that “there is also no will to reduce government spending and, moreover, with the level of indebtedness that the country has, it cannot maintain this level of spending.”
Government needs more than $ 2 billion to pay off short-term debt
On a pension reform
Another issue in which Artavia has an opinion is on pensions and he has considered that in El Salvador we had to work and make a real pension reform for a decade.
“The problem is that there aren’t enough contributors; they don’t contribute enough; and every time pensioners get a lower percentage of the standard of living they had,” he said. He added that as long as 70% of the population is informal, “there will not be enough funds to sustain pensions.”
In Artavia’s opinion, the Salvadoran pension system must be supportive. “We need to put higher retirement ages, increase the contribution and look for a practical situation in the informal economy, all those who do not contribute and are leaving a pyramid without a basis.”
He added that El Salvador has a double problem: the informal economy and the huge number of young people who have emigrated and who do not feed the pension system.
“They feed through remittances directly to consumption and some to investments, but not to the pension base,” Artavia said.