The Moscoso administration reacted to the failure of the national dialogue on tax reform by taking parts of her original proposal --- which generated widespread public opposition --- and parts of the minority reports filed by the labor unions and the Chamber of Commerce, to come up with a somewhat changed plan to submit to the Legislative Assembly.

In gross terms, the total tax hike now suggested is about 10 percent lower than what the Cabinet Council first wanted. Though the details are changing as the debate proceeds in the Legislative Assembly, the basic outlines are that sales taxes would be doubled on certain items deemed to be luxuries; sales tax would be extended to cover most services; and most special tax incentives designed to promote different industries would be phased out over five years. The minimum corporate income tax and taxation of executive expense accounts that had been originally proposed by the Cabinet Council are off of the table, but the income tax exemption for those who make less than $800 per month is still being considered.

As critics point out, the change in tax revenues is theoretical, because if heavier taxation drives a company out of business, that enterprise and its laid off employees will pay less, not more, into state coffers. It does seem, however, that the proposal before the legislature at the time when this issue was uploaded would add up to a substantial net tax increase.

National and international observers are skeptical about the chances of any significant change. Without stirring up any angry responses, Credit Suisse/First Boston opined that "we expect only a light tax reform to be passed," and as a result "an IMF agreement now looks less likely." That was one of the more optimistic forecasts. Photo courtesy of the Presidencia