Salvadoran Administration Proposes to Levy Security Tax on Capital

By Dialogo
May 25, 2011

El Salvador’s leftist administration is seek to levy a tax on two thousand large taxpayers in order to raise 120 million dollars a year for the fight against crime, a proposal that has been cautiously received by business, which wants to know first what activities will be financed with those resources.

After seeking advice from Colombia’s right-wing administration – which collects a similar tax – leftist President Mauricio Funes presented the proposal, which has the purpose of endowing the state with greater resources in order to make a “greater impact” in fighting crime, to the Consultative Commission for national issues on 20 May.

The Commission, made up of political leaders and a former right-wing president (others have declined), will issue an opinion on the proposal shortly, before Funes sends it to Congress.

“We’re thinking about a tax that is not going to affect the country’s process of economic recovery,” declared Funes, El Salvador’s first leftist president, indicating that small and medium-sized businesses would not be subject to the levy.

The president of the Salvadoran Chamber of Commerce and Industry, Luis Cardenal, acknowledged that the problem of security “concerns and affects all of us,” but he rejected the tax proposal as “unsuitable” and “poorly framed.”

In a telephone interview with AFP, the business leader lamented that the proposal was announced “with divisive, classist, populist language” and that the administration wanted the population to believe that the measure would only affect the richest.

“This (the tax) should be discussed, there should be consultation, and it shouldn’t be done unilaterally, with populist language and without it being accompanied by other measures that are just as important as resources or more so,” Cardenal indicated.

He insisted that “before throwing more money (at security), what should be done is to look for a way that the police can win back the people’s trust, and that is by way of a purge and a reorganization needed by the police as an institution, because in every criminal gang, there always turns out to be a bad police officer mixed in.”

Funes declared on 23 May that those who will pay will be around 2,360 “high net-worth” taxpayers, of whom 1,900 are legal persons (corporations), and that they will not be making new outlays, but instead will be able to stop spending money on private security if crime falls.

“In place of giving that money to a few security agencies that do not give them the security that they (businesspeople) need, let them turn it over to the state,” Funes emphasized.

One of the voices supporting the tax is that of the archbishop of San Salvador, José Luis Escobar, who characterized it as “just” on 22 May, because it will be applied to those who have the most, although in order to see it passed, he recommended dialogue in order to negotiate “with goodwill.”

“If the administration says that in order to confront the violence, a fund is necessary, it seems to me that this is legitimate, and that the administration has every right and obligation to ensure (…) peace in the country,” Escobar commented.

Violence generated by common crime and by gangs takes an average toll of twelve homicides a day in El Salvador, one of the highest rates in Latin America.