Identifier
Created
Classification
Origin
04GUATEMALA1765
2004-07-16 18:37:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Guatemala
Cable title:  

TAX COLLECTIONS EXCEED TARGETS THANKS TO PROGRESS

Tags:  ETRD GT UNCTAD WTRO 
pdf how-to read a cable
This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS GUATEMALA 001765 

SIPDIS

SENSITIVE

TREASURY FOR TOLUI AND PARODI

E.O. 12958: N/A
TAGS: ETRD GT UNCTAD WTRO
SUBJECT: TAX COLLECTIONS EXCEED TARGETS THANKS TO PROGRESS
WITH CUSTOMS REFORM

REF: GUATEMALA 1641

UNCLAS GUATEMALA 001765

SIPDIS

SENSITIVE

TREASURY FOR TOLUI AND PARODI

E.O. 12958: N/A
TAGS: ETRD GT UNCTAD WTRO
SUBJECT: TAX COLLECTIONS EXCEED TARGETS THANKS TO PROGRESS
WITH CUSTOMS REFORM

REF: GUATEMALA 1641


1. (SBU) Summary: Tax collections are above target through
June, despite delays in the fiscal reform. The good news
comes as a result of much better collections by Customs of
duties and value added tax in the ports, the result of a
shifting focus from physical inspection of containers to
ensuring that all containers are systematically tracked.
This shift in focus augurs well for revenues, combating
corruption, and removing a key obstacle to more fundamental
tax reform.


2. (U) Superintendent of Tax Administration Willy Zapata
told the press July 14 that preliminary data on tax
collection for the first half of 2004 showed that revenues
were almost 8% over the target, despite the substantial delay
in passing tax reform and replacing the IEMA alternative
minimum tax that was declared unconstitutional in December
2003 (reftel). The mid year target had been Q 9.3 billion,
but actual collections were Q10 billion ($1 = approx Q8).
Zapata was optimistic that the target for the year of Q21
billion would be reached with the recent replacement of the
IEMA with the IETAAP.


3. (SBU) Zapata's special advisor on Customs Christian Ros
and Customs Intendent Rodolfo Fernandez told EconCouns and
Econoff July 7 that collections of duties and value added tax
on imports had been increasing dramatically and were
offsetting the revenues lost as a result of the court ruling
on the IEMA, which took effect in the second quarter of 2004.
They said that preliminary information indicated that border
tax collection for May was some 12% above the amount in May
2003 and that June collections were up by over 20%. They
expected collections to continue to rise as new measures they
were taking came into effect. Ros said that under-valuation
of invoices, the principal focus of the Portillo
Administration, was not the principal source of tax evasion.
The greater problem was the complicity of corrupt officials
in the ports with organized smugglers, allowing containers to
pass through the ports without a trace. Ros's priority was
to ensure that everything coming off or on a ship matched the
ship's electronic manifest. Containers leaving the port by
truck also had to be in the Customs computer. Smugglers were
finding that they could not avoid the controls by sneaking
containers around inspection points, and that was the reason
collections were up. His next step would be to ensure,
through audits, that what is declared on incoming manifests
matches up with what importers buy, produce and sell.


4. (SBU) Comment: The news is encouraging, for several
reasons. First, prospects are looking better for meeting the
Berger Administration's target of a fiscal deficit no greater
than 2% of GDP. Secondly, Ros's approach to customs
management marks a clear intention to shift from a focus on
physical inspection, where corrupt customs agents have long
practiced discretion to ignore what they see, to an
information and audit based system where evasion and
under-valuation are difficult. It not only seems to be
working by raising more revenues, but it is also better
attuned to the concepts of business facilitation we are
promoting in the WTO, FTAA and CAFTA. Finally, effective and
efficient management of Customs is something the private
sector has long been demanding as a condition for significant
tax reform. The Portillo Administration, along with some in
the international community, accused the private sector of
rejecting its responsibility to pay its fair share of taxes.
Private sector leaders have responded that they will pay more
taxes, but not until massive contraband is eliminated and the
playing field is leveled. The argument is self-serving, but
it also has merit. An effective crackdown on contraband will
remove the strongest argument that still exists for delaying
effective fiscal reform.
WHARTON