Tax changes in Honduras: implications for the productive sector

The conversation regarding the Tax Equity Law in Honduras has sparked significant discussion among the private sector, entrepreneurial groups, and governmental officials. The proposed tax changes, supported by the current administration, have been perceived by business leaders as a major threat to employment stability and the ongoing operation of numerous companies nationwide. The primary worry relates to the removal of tax benefits that have been crucial for the growth of industries such as assembly plants, agricultural exports, tourism, and building, which, according to industry leaders, might lead to widespread shutdowns and large-scale layoffs, particularly affecting small and medium-sized businesses.

The anticipated effects of the reform go beyond just influencing the business world; they also reach the family economy and social structure in Honduras. Experts and union heads caution that declining economic activity, along with companies moving out, might lead to higher levels of structural unemployment, a rise in informal work, forced migration, and a drop in local spending. This situation worsens given the present circumstances in the nation, where over a million individuals are searching for quality employment and informal jobs impact a large portion of the people.

Effects of the elimination of tax incentives and the risk to employment

The Law of Fair Taxation entails the removal of tax benefits and exemptions, impacting over ten sectors, such as free trade zones, tourism, sustainable energy, and production. Business industry statistics indicate that these systems currently support over 400,000 direct jobs and over a million indirect positions, notably in agriculture supply chains, industries, and trade. Doing away with these incentives could result in shutting down factories, workshops, stores, and agricultural sites in cities and countryside, causing many Hondurans to lose formal jobs and heightening strain on informal work sectors.

An evaluation by the Honduran Council of Private Enterprise (Cohep) shows that the proposed tax reform could adversely affect industries like tourism, manufacturing, and agribusiness. For instance, within the manufacturing sector, around 40,000 jobs and export revenues exceeding $733 million might be jeopardized. Tourism could face a substantial reduction in direct and indirect employment, along with a notable drop in investments and salaries. Moreover, higher operational expenses, particularly for micro, small, and medium-sized businesses, would challenge their ability to stay competitive, which may worsen the issues of unemployment and underemployment nationwide.

Implications for society and different suggestions from the corporate world

The societal implications of the reform are expected to be lasting, potentially escalating poverty, compulsory migration, and distrust at both national and international levels. The growth of the informal economy and the decline in formal employment with social benefits might worsen living conditions and revenue from taxes, impacting all people in Honduras. Business officials are additionally worried about the cascade effect on social steadiness, cautioning that job losses could exacerbate the country’s poverty.

In light of this situation, the business community has offered solutions such as lowering the sales tax from 15% to 12% to leave more cash in the hands of citizens, boosting the economy and creating jobs. They also believe that rather than removing benefits for all industries, inspections and audits should be conducted on tax-exempt businesses that engage in irregular activities, utilizing the powers already provided by existing laws. The business sector emphasizes the importance of discussion and consultation with all productive parties prior to enacting a reform that may have lasting effects on the nation’s economic and social growth.

The discussion regarding the Law on Tax Equity remains heated, with pressing appeals for Congress to critically assess the details of the legislation and steer clear of choices that may exacerbate the core issues of Honduras, including joblessness, poverty, and migration.