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The Tax Justice Bill in Honduras has sparked widespread debate in the country due to the potential effects it could have on the economy and the national productive sector. This initiative, promoted by the LIBRE Party government, is presented as a tool to combat tax evasion and strengthen state revenue collection. However, its content and scope have been interpreted in different ways by various economic and social actors.
The plan proposes to remove tax exemption systems, raise the tax load, and enhance the state’s authority in handling economic incentives. These actions are perceived by the business community as a negative indicator for investment and production, leading to uncertainty and anxiety within the Honduran economic context.
Impact on personal investment and jobs
Several commercial groups, business federations, and both local and international investors have expressed concerns that the proposed legislation might negatively impact private investments in Honduras. The Honduran Private Sector Council (COHEP) cautions that passing the law as it is could greatly diminish the inflow of foreign direct investments. Furthermore, companies within free trade zones and the agribusiness sector are allegedly thinking about leaving the country or cutting back their activities, which would directly affect formal employment and the national economy.
Since the proposal for the new bill was submitted, there have been accounts of small and medium-sized enterprises shutting down, especially within the textile, logistics, and export sectors that were benefiting from tax breaks. In areas like Choloma, Villanueva, and San Pedro Sula, factories have started to lay off employees, highlighting fiscal unpredictability as a key factor. This dilemma endangers thousands of jobs and might deteriorate further if the bill remains unaltered or isn’t halted. COHEP also highlights that economic expansion could face significant deceleration in the year after the law takes effect, with increased unemployment and informality being unavoidable outcomes of its enforcement.
Regional backdrop and political discussion regarding fair taxation
The discussion surrounding the Tax Justice Law is unfolding within a specific regional and political environment. Removing tax incentives might set Honduras apart from the strategies that have enabled nations like Costa Rica, El Salvador, and the Dominican Republic to preserve investment allure and stable fiscal systems, which are seen as crucial elements for their competitiveness. This could impact Honduras’ standing in Central America and the Caribbean, potentially deterring both new and existing investors, who might opt to relocate their capital to countries that offer more business-friendly conditions.
The backdrop of politics and ideologies has shaped views on the legislation, with some industries viewing the administration’s formal rhetoric as unfriendly to commerce and in line with economic systems that have caused structural shifts in other nations within the area. This heightens concerns about a potential overhaul of the country’s economic framework without a strategic blueprint or a transparent perspective on sustainability.
Conversely, advocates of the Tax Equity Law contend that tax breaks have led to wealth concentration and diminished the government’s ability to fund public initiatives targeting social inclusion and poverty alleviation. Based on official figures, 92% of these exemptions benefit the wealthiest 10% of businesses, whereas the other 90% of firms only receive 8% of such advantages. From June 2009 to December 2022, these policies caused the state to forfeit 455 billion lempiras in income.
The legislation does not impose additional taxes or raise current rates. Instead, it seeks to address legal loopholes and enhance direct tax contributions from major corporations and affluent individuals, aiming to lessen disparities in tax revenue. Yet, doing away with long-established fiscal arrangements, such as the Temporary Import Regime (RIT), which has been in place for four decades, might result in the shutdown of many businesses operating under this framework. COHEP has highlighted that the proposition to ensure immediate convertibility to the RIT could be perceived as a measure impacting the liquidity and viability of companies.
Honduras confronts a significant economic issue
The discussion regarding the Tax Justice Law continues to be both open and divisive. Some people think it might establish the basis for a more just and equal tax framework, while others caution that its passage might deepen the economic downturn, raise unemployment, and lead to capital outflow. The ultimate decision in the National Congress will be crucial for Honduras’s economic path in the upcoming years.