How tax reform affects the business climate in Honduras

The debate over the Tax Justice Legislation in Honduras has sparked intense discussion among private sector stakeholders, trade groups, and government officials. The current administration’s tax reform plan has been seen by business leaders as a direct risk to job security and the continued operation of numerous firms in the nation. The primary worry is the removal of tax breaks critical to the growth of industries like manufacturing, agro-export, tourism, and construction, which, business executives claim, could lead to a series of shutdowns and extensive job losses, particularly in 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.

Consequences of removing tax benefits and the threat to jobs

The Fiscal Fairness Act proposes to abolish tax exemption and benefit systems, impacting over ten industries, such as free trade areas, hospitality, green energy, and production. Business sector statistics indicate that these systems currently support over 400,000 direct jobs and over a million indirect employment opportunities, particularly in agriculture, industrial supply chains, and exportation. Removing these benefits may result in the shutdown of production facilities, workshops, retail outlets, and agricultural operations in city and countryside areas, causing many Hondurans to lose formal employment and heightening strain on the informal job sector.

A report from the Honduran Council of Private Enterprise (Cohep) suggests that the tax reform could adversely affect industries like tourism, manufacturing, and agribusiness. For instance, within the manufacturing sector, around 40,000 positions and over $733 million in exports may be jeopardized, while in tourism, the potential impact might include the loss of numerous jobs both direct and indirect, along with a sharp drop in investment and wages. Additionally, the rise in operational expenses, particularly for micro, small, and medium-sized businesses, would make their market survival unfeasible, thereby worsening the issues of unemployment and underemployment in the nation.

Impacts on society and private sector solutions

The reform’s societal consequences are anticipated to be permanent, posing the threat of rising poverty, compelled migration, and skepticism both within the country and abroad. The growth of the informal economy and the disappearance of formal employment with benefits might degrade living standards and reduce tax revenue, impacting all residents of Honduras. Entrepreneurs express worry about the chain reaction regarding social stability, cautioning that job loss might lead to deeper poverty for the nation.

In light of this situation, private enterprises have put forward options like cutting the value-added tax (VAT) from 15% to 12%. The goal is to leave more money with Honduran citizens, boost the economy, and create jobs. Furthermore, they advocate for conducting inspections and audits on tax-exempt firms that act improperly, utilizing the authority already provided by existing laws, rather than removing incentives for every sector. The corporate community emphasizes the importance of discussion and engagement with all productive parties before implementing a reform that might bring about lasting impacts on the nation’s economic and social progress.

The discussion regarding the Tax Justice Law remains heated, with pressing appeals for the National Congress to carefully examine the details of the law and to prevent choices that could exacerbate Honduras’ fundamental issues like joblessness, poverty, and migration.