Ortega unveils tax overhaul in troubled Nicaragua

Arguing that the sociopolitical conflict starting in April 2018 led to 11.6bn córdobas (US$368mn) in lost tax revenue, the government of Nicaraguan President Daniel Ortega has introduced a fiscal reform package meant to refill its coffers and restart growth.

As reported by news agency EFE, Wálmaro Gutiérrez, a deputy for the ruling Sandinista party (FSLN), expressed confidence that the initiative would be passed this week.

The wording of the proposal said that GDP contracted 4% last year instead of reaching its expected potential of 5% growth, which was previously forecast in an estimate for 2018-2022.

The proposal also said that the ongoing economic impact from what it described as "terrorist actions" by "unpatriotic groups" was set to hamper economic growth again in 2019.

The initiative sets out to reform the country's main tax code, raising income taxes (IR) and sales taxes for select items (ISC), with the goal of raising government revenue. As outlined, tax revenues this year would reach 10.2bn córdobas, or 2.3% of GDP, and increase to 16.0bn córdobas in 2022, or 3% of GDP.

Among the main changes proposed by the Ortega administration is the increase in IR for large companies, which would go from paying 1% to 3%, and medium-sized companies, which would pay 2% instead of 1%. Micro enterprises and small businesses would continue to pay 1%.

The proposal, presented by finance minister Iván Acosta, also raises all labor-related taxes - including salaries, performance and seniority bonuses and vacation pay - to 25% from 12.5. Non-residents would see taxes on services rendered rise from 15% to 25%.

The proposal supports the current VAT rate of 6.5%, as well as existing exemptions for basic goods. It adds exemptions on the purchase of materials and machinery for construction of projects mandated by the government's "maturation period commission."

Changes to ISC taxes include higher rates for tobacco products, alcoholic beverages, sugar-sweetened beverages, and food products deemed of low nutritional value.

The initiative also modifies capital gains and luxury good taxes.

For goods subject to registration - "properties, vehicles, etc." - the proposal sets three strata, charging 5% of the value of goods received for total property between US$300,000 and US$500,000, 6% for registries totaling US$400,000-US$500,000 and 7% for property with higher values.

For capital gains, the state would raise the tax rate from 10% to 15%.

Casinos would be required to pay US$50 for each gambling machine and US$600 for each table.

Mining royalties would increase from 3% to 5%, and the existing income tax deduction would be removed.

Last April, a major reform to the nation's pension system, brought in quickly with a decree from Ortega, sparked a sociopolitical crisis in Nicaragua that has left hundreds dead and hundreds of political prisoners.

International bodies, including the OAS and the EU have stepped up pressure on the Ortega government to allow international human rights organizations back into the country with support for determining violations, as well as urgent calls for early elections.

Pictured: Members of the national police are deployed in the streets of Managua on January 24, 2019.