News

For more than six years, various international organisms like: The International Monetary Fund and the World Bank have recommended in multiple occasions to the Government of El Salvador to increase at least 2 points the VAT rate, which would place this tax at a rate of 15% over movable property and services transferred in the country; this as a measure to increase the tax collection and to reduce the fiscal deficit that the country is facing.

Without entering to a valuation, being agreed or not with the augmentation of indirect taxes, what it is an undeniable fact is the importance of the VAT for the recollection of taxes in El Salvador. According to the official information of the Hacienda Ministry, in the period of January through December 2017 the taxes recollection increased to USD 4,489.5 million, from which USD 1,948.5 million were from the VAT. This means that the VAT represents a 43.40% of the total recollection, so that an adjustment to this tax would have an almost immediate impact in the state income.

In recent declarations given by Nelson Fuentes, recently named as Minister of Hacienda, the functionary has been emphatic by affirming that there are no plans in increasing the VAT rate or of creating new taxes, at least during his period, so that his declarations to these adjustments to the tax charge will be implemented until 2019 or 2020, when a new administration in the Government exists.

Beyond the facts that the decisions to adjust the fiscal charges are taken during this period or they stand to the subsequent Government Administration, it is recommended for the companies that run their inside analysis in order to measure the possible impacts of a potential increase of the VAT, in order to be prepared when these changes happen.

Mauricio Orellana Caballero
Senior Associate
García & Bodán
El Salvador