Tax reform in Honduras: effects on investment and private employment

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 the corporate sector and touch upon the economic situation of Honduran households and the social network. Experts and labor representatives caution that a decrease in economic activities, along with company exits, might lead to higher structural unemployment, a rise in informal work, compelled migration, and a downturn in national consumption. This situation is made worse by the existing conditions in the nation, with over a million individuals in search of suitable employment and informal jobs impacting a large segment of the populace.

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 different initiatives from the business community

The reform’s societal effects are expected to be permanent, posing a danger of heightening poverty, causing displacement, and leading to domestic and international distrust. The rise of the informal economy and the reduction of jobs with benefits could degrade living standards and decrease tax revenue, impacting all people in Honduras. Business leaders express worry over the potential ripple effects on societal stability, cautioning that job losses might deepen 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.