Newsmakers : Taxing Times For A New President

GUATEMALA

Just weeks after being sworn in on January 14 as the new Guatemalan president, Álvaro Colom—the Central American country’s first left-of-center leader since Jacobo Árbenz, who was overthrown in a United States-assisted coup in 1954—is facing challenges on the fiscal front. Although the administration aims to boost revenues without raising taxes, business leaders are up in arms over the extension of a controversial tax. Without it, however, Colom will have a tough time delivering on his promise to improve social conditions.

The controversial tax, called IETAAP, was introduced as a temporary measure to support the government’s commitments under the 1996 peace agreements that ended a bloody civil war. While the tax was to end in 2007, legislators approved its extension through 2008, forcing businesses to pay 1% of their gross income or assets. Some businesses are exempt, but business groups, including the Guatemala Chamber of Commerce, are threatening to legally challenge the tax’s extension. The groups had already convinced the Constitutional Court to eliminate another tax.

The decision to extend the IETAAP came last December, before Colom took office. His predecessor, Oscar Berger, also secured approval of the 2008 budget but cut social spending. With Colom’s party not holding a congressional majority, it will be difficult for him to fix the situation.

The economy has been on Colom’s side, with tax revenues rising and GDP expanding 5.7% last year—the highest growth rate since 1977. Growth has been fueled by increased exports and commodity prices, though a US economic slowdown may hurt trade and will affect remittances from Guatemalans in the US.

Colom has called on businesses to enter into a “social pact” with his administration to help the poor. Business leaders, who generally support him, may have a difference of opinion as to how to lend a hand in his social crusade.

Antonio Guerrero