Tax Hike a Blow for Workers

Cerigua Weekly Briefs, No.48, 14 December 1995

Guatemala City, December 11. On January 1, a 41.9 percent increase in the added value tax (IVA) on sales goods will go into effect. And small agricultural producers and workers will be hit hardest, according to analysts.

A rise in prices, loss of competitiveness against importers, and a reduction in buying power are among the repercussions expected with the upcoming hike in the IVA from 7 to 10 percent. "The increase in the IVA will definitely have a multiplying inflationary chain effect," said Carlos Enriquez Perez, buyer for the company Agrobodegas S.A. According to Enriquez, agricultural producers for the internal market will not be able to compete with importers because the price of products such as seeds, fertilizers, and machinery will increase. "It's possible that farming will be abandoned, and a level of subsistence economy will be reached," he said.

And consumers will pay the price of producers' efforts to offset increased costs. "Big business won't lose out," said Manuel Mejia of the indigenous organization Consultoria Maya. "It's the final consumers who pays for the broken plates."

But according to analyst Maria del Carmen Acea of the National Center of Economic Investigation (CIEN), the poorest of the poor will not feel the effects of the hike, since they make their living in the informal sector and do not collect the tax. Acea admitted, however, that urban and farm workers, whose salaries do not keep pace with the market, will see their buying power cut.

Congress passed the IVA increase last March by Congress as part of a hotly debated tax reform package aimed at improving government revenues. According to the legislation, the hike would go into effect two months after the signing of a final peace accord with the Guatemalan National Revolutionary Unity (URNG) or January 1, 1996.