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El Salvador: Proposals to combat tax evasion

Wednesday, December 19, 2012

At the initiative of the President, and in the tight fiscal situation, the Ministry of Finance has prepared a draft Law on Tax on Financial Operations, as a way to increase tax revenues fairly, while balancing public finances.

The proposed legislation may change before it is presented to the Legislature, which has not happened yet.

On one hand, the Law of Financial Operations, proposes to tax several types of financial transactions, by an amount that could be 0.25% of the transaction value.

Several other countries in Latin America apply – or have applied - a similar tax.

Honduras, for example, created a temporary tax, in order to finance the fight against crime.

Peru also taxes these transactions, although the rate is 0.05%, and the tax aims to be an indicator of financial transactions (for possible undeclared wealth) and not a collection system as such.

The new Salvadoran tax would be applied to various types of transactions, including international transfers, and transfers between domestic banks, including checks, among other payment mechanisms.

The bill, however, seems to create two separate taxes within the same program, as regards first a tax on financial transactions and then a "duty to control liquidity," whose aim seems to focus on preventing tax evasion.

In the latter case, the taxpayer may recover the amount paid, through a tax credit, available up within two years of retention.

The bill has not been presented to Congress, so these situations may be clarified later.
For more information, please contact Dr. Diego Martin at [email protected], or (503) 2209 1600