Tax Reform Could Mean Less Buying, More Inflation

February 5, 2010
By pa.di.

Starting in March, Panama’s Personal Property and Service Transfer Tax (ITBMS) will increase from 5 percent to 7 percent, meaning that the government will rake in an additional $220 million to $240 a year.

Vice Minister of Finances Duicidio De La Guardia confirms these numbers, but says that 70 percent of the tax is paid by the 20 percent of the population earning higher incomes.  The estimated 800,000 people earning less than $850 a month do not pay taxes on income.

Aristides Hernandez of BDO Panama Consultants says that the tax reform will most likely reduce purchasing power and increase inflation.  The increase would apply to sectors such as lubricants, residential phones, restaurants, prepaid cellular phones, fizzy beverages, and airline tickets.

Last year, the government collected $561 million in service tax.  If the math is correct, the 2% increase would generate 40% more government revenue at year’s end.

La Prensa Reports.

2 Responses to “ Tax Reform Could Mean Less Buying, More Inflation ”

  1. [...] As a result, the sales tax will increase from 5% to 7% as of July this year.  Fondas and fast food restaurants will be exempt as long as the establishments do not sell liquor, as will medicines, medical food and disposable diapers.  The tax will however increase on  pre-paid cell phone cards, among other things. [...]

  2. [...] to the reform have argued that the new seven percent tax will increase the economic burden of basic goods and services and increase inflation, but the [...]