Context
Although Guatemala is Central America’s largest national economy and regarded as a middle-income country, the government has a relatively small national budget at its disposal. This budget is far from sufficient to kick-start and finance universally accepted state and societal reforms. The country’s national budget deficit is hampering its development.
In terms of revenue, Guatemala’s lack of organisational skills in the field of tax policy makes it difficult to strike a balance between the different interest groups involved. Individual interests have a strong influence on tax policy. Furthermore, there is a general reluctance to pay taxes as the national tax collection system is inefficient and not citizen-friendly.
At local level, due to a lack of skills, the potential for income from property tax, the authorities’ most important source of revenue, is not being fully utilised. An additional reason for the country’s weak tax culture is a lack of transparency and accountability in public finance at all state levels in Guatemala.
The government’s objectives under President Otto Pérez Molina include introducing an integrated fiscal policy and strengthening the tax administration system. The law to prevent tax evasion passed in January 2012 and the tax reform of February 2012 have reinforced the political will to realise these objectives.
Objective
The capacity to perform and transparency of the Guatemalan tax system has increased, improving the state’s financial self-sufficiency and ensuring it is able to function effectively in the long term in order to achieve its development goals.
Approach
The programme aims to advise the tax authorities (Superintendencia de Administración Tributaria, SAT) and the Ministry of Finance at national level on applying existing and recently passed tax laws consistently. This will involve the strengthening and improvement of existing forms of tax revenue. An important aspect of this is assessing the impact of changes to tax laws aimed at striking a balance between different interests and ensuring fair distribution of the tax burden.
Simultaneously, a transparent, efficient tax administration system aims to help citizens better understand how taxes are collected and what they are spent on. The programme is also designed to foster public debate on ‘tax culture’ and thus encourage citizens to fulfil their tax obligations voluntarily.
A pilot scheme is being used to improve the options and skills of selected municipalities in collecting property tax and put them on a sound financial footing.
All parties relevant to fiscal policy, such as the president’s office, the Ministry of Finance and the tax authority and audit office are being included systematically in this process. The programme is based on the Good Financial Governance approach, which includes dialogue on tax culture and a multi-level approach (a national and subnational revenue system). This cross-institutional approach enables coherent action at policy, administrative and audit level which will support reform and achieve sustainable results across systems.
The programme builds on the experience and success of the 2009-2013 ‘Advice on fiscal policy’ project.
Results
Significant results of the programme to strengthen the national and local tax system in close cooperation with the Ministry of Finance (MINFIN) and the national tax authority (SAT):
Drawing up a common, cross-institutional work plan to reinforce the municipal finance system
Introducing and applying the International Public Sector Accounting Standards (IPSAS) in Guatemala’s public finances
Reinforcing national municipal policy by compiling a 2012 municipality ranking.
The ranking for 2013 is currently being drawn up.
Drafting the bill to establish the national municipal tax plan and revising the municipal tax code bill
Collaborating with the Women’s Committee of the Congress for Reform of the Municipal Tax Code to promote jobs for women at local level
Providing support to the Ministry of Finance’s Dirección de Asistencia a la Administración Financiera Municipal (DAAFIM) on setting up and developing a decentralised advisory structure for administrating local finances in Guatemala’s 338 municipalities
Giving targeted advice to the Dirección de Catastro y Avaluos de Bienes Inmuebles (DICABI) to improve Guatemala’s land registry tax system
Sharing experience between Guatemalan tax authority (SAT) officials and their counterparts in Argentina, Chile, Costa Rica, Ecuador and Mexico
Improving the audit function of the state tax authority (SAT) through training in, for example, preparing an audit and auditing in selected economy sectors such as airlines, mining companies, telephone operators, construction firms and electricity companies