politics

Opinions divided on flat tax

Experts are ambivalent over the effectiveness of Ricardo Martinelli’s proposed flat tax.

la prensa

an easier time: A proposal by Alliance for Change candidate Ricardo Martinelli would simplify the country’s tax laws, but critics say that it might lead to a sharp decrease in revenues, which would impact spending on social porgrams.1164255

The tax reform proposed by the Alliance for Change political party, which includes implementing a flat tax instead of the current income tax has generated an interesting debate among economists, lawyers and experts in tax law.

Some support the initiative, arguing that the proposal simplifies the current system and will attract investment into the country, but others warn that the change will decrease revenues.

The flat tax proposed by the presidential candidate Ricardo Martinelli, who currently leads polls by a wide margin, involves reducing the rate of corporate income tax from 30 percent to between 10 percent and 15 percent while limiting deductions and eliminating a number of grants and tax exemptions, including banking.

“It takes a real surgeon to handle tax matters such as banking without causing damage,” said José Javier Rivera, an expert in tax law. “The banking system should be viewed not only from a tax perspective, but something that brings capital, investment, stability, employment and resources to the system and allows the facilitation of business activities.”

In addition, he said, using the flat tax in Panama could be ruled unconstitutional.

“The Constitution states that any change in terms of raising income needs to be replaced,” Rivera said. “What is the income replacement in this case? The flat tax, with a low rate, has been compensated in other countries with a high sales tax. But here it has historically been rejected. For 30 years we have had a rate of 5 percent.”

The president of the College of Economists, Raúl Moreira, has similar concerns about the proposal.

“Removing the [income tax] and implementing a flat tax would mean a significant reduction in state tax revenue,” Moreira said. “What will replace the current tax revenues, which have served to finance much of the public investment programs?”

But Roberto Alfaro, the president of the Panamanian Association of Business Executives, said he welcomed the initiative because a flat tax would be “fair and easier to handle.”

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