El Salvador Passes Law to Encourage Payment of $500 Million in Back Taxes

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Last week, legislators in El Salvador approved an initiative proposed by President Salvador Sánchez Cerén to incentivize the payment of hundreds of millions of dollars in income and sales taxes owed to the state by companies and individuals to generate much-needed revenue for social and public security programs.

The temporary measure, approved with 77 of 84 votes, grants a period of 90 days for debtors to negotiate a payment plan with the Treasury Ministry. Those that pay within the first month will be absolved 100% of additional interest and fines owed, 90% within the second month and 80% within the third. In addition, the administration plans to use public pressure to spur payment: “After ninety days, we will publish the list of debtors in every newspaper,” said President Sánchez Cerén.

Currently, 29,083 companies owe a total of $437.9 million, including $113 million in fines and $67.4 million in interest; 37,725 individuals owe a total of $75.1 million, including $11.3 million in fines and $25.4 million in interest, bringing the total owed to the state in taxes to a staggering $513 million.

The initiative comes as part of ongoing efforts by the leftist Farabundo Martí National Liberation Front (FMLN) administration to grow state income, establish a more equitable tax system and increase investment in social programs. In addition to the funds collected by the newly passed temporary law, the administration expects to recover $100 million from recent fiscal reforms, increasing tax revenue by up to 17%.

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