Experts inside and outside the country warn that the Nayib Bukele government’s discourse that she will fight tax evasion and thus get a guarantee for the $ 1.3 billion loan she is seeking from the International Monetary Fund (IMF) is not really is, and not enough.
El Salvador’s economic and social situation is very critical and if the government wants to reach an agreement with the International Monetary Fund (IMF) to get a $ 1,300 million loan, the discourse to fight tax evasion rather than tax to lift are not sufficient. economists warn.
“I can almost assure you that the Fund will not sign an agreement with El Salvador just with the idea of ending tax evasion; That’s a super engaging speech if it were possible, but it just isn’t. It must necessarily incur tax obligations in terms of income, expenditure and structure in the public sector, ”warned Costa Rican economist Roberto Artavia, chairman of the board of INCAE Business School, in a recent television interview.
He added that “in an ideal world, it would be said that the idea of fighting tax evasion is the happiest because it means that we are not a burden to anyone. The IMF will never accept that: first of all because most of the tax evasion comes from the informal economy, from smuggling, from activities that are already illegal… ”.
Compliance with the International Monetary Fund can lead to an increase in VAT
Artavia’s analysis stems from the fact that the government has been negotiating with the IMF to borrow money since late last year, but an agreement with this organization is known to entail rigid tax measures, such as an increase in VAT. , for instance.
Although, according to Finance Minister Alejandro Zelaya, the government’s strategy will be to fight tax evasion and not to increase VAT.
“VAT is not being increased, we are not including that part in the agreement, what we are going to do is fight tax evasion and the IMF is taking that as a fiscal adjustment measure,” assured Zelaya. March 17 this year.
The government foresees a value added tax (VAT) collection of $ 2,643.4 million, a figure that is impossible to achieve, according to the analysis of the Salvadoran Foundation for Economic and Social Development (Fusades), which is $ 603.8 million in collections.
Therefore, Salvadoran economists agree with Artavia that the Executive will not be able to come to an agreement with the IMF on this strategy.
“The government is not saying anything about how it is going to fight tax evasion, I don’t think it is aimed at fighting smuggling and tax evasion. To think that they will collect 3 or 4 points of GDP within a year, based on the methodology of prosecuting those who already pay taxes, will be minimal, ”said economist Luis Membreño.
Economist Rafael Lemus also pointed out that the IMF may believe the government is willing to develop good practice or a successful fiscal adjustment, but seeing the non-compliance it could suspend the deal if finalized .
And this is also mentioned by Dr. Artavia when he says he can rest assured that there will be no agreement with the Fund if the whole government plan is to tackle tax evasion; he tells them that this is neither credible nor consistent. El Salvador’s tax problem is much bigger than Costa Rica’s in terms of debt and imbalances, ”said Lemus.
With regard to the fact that if he deems it possible that the Fund could ask the country to introduce new taxes, Lemus felt that the discussion could be more about cutting costs.
“The Fund will warn that El Salvador’s adjustment is much greater than Costa Rica’s and that this country has been asked to take revenue and expenditure measures, and that will be the same with the government of El Salvador, so it is not. . enough to say he will go after evaders, ”Artavia said.
In her analysis, Artavia took the view that if it is to set taxes in the country, it must be a well-thought-out structure and not just to raise them.
“In El Salvador the tax burden will be relatively higher, that is, taxes on wealth, not on production; taxes on pollution, not investment; taxes on idle capital, not on productive capital; and in that sense, taxes should not just be raised to increase, but rather focus on taxes that generate additional income without harming the productive boost or investment the country needs, ”said the Costa Rican expert.
The 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 be more about transparency of spending and reducing it than to increase them. the tax burden.
But Membreño pointed out that “the will to cut government spending is not seen either and, moreover, with the level of indebtedness the country has, it cannot maintain that level of spending.”
The government needs more than $ 2 billion to pay off short-term debt
About a pension reform
Another issue on which Artavia expressed his views is that of pensions and felt that El Salvador should work for ten years and implement a real pension reform.
“The problem is that there aren’t enough contributors; they don’t contribute enough; and every time the retirees get a lower percentage of the standard of living they had, ”he said. He added that although 70% of the population is in the informal sector, “there will not be enough money to support pensions”.
According to Artavia, the Salvadoran pension system must be supportive. “We need to set higher retirement ages, raise the premium and find a practical situation for the informal economy, for all those who don’t contribute and leave a pyramid without a foundation.”
He added that El Salvador has a double problem: the informal economy and the sheer number of young people who have emigrated who are not feeding the pension system.
“They feed through remittances directly to consumption and some of the investment, but not to the pension base,” Artavia said.