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Paraguay’s Finance Minister Explains How His Country Can Cope with Covid-19

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How will your tax reform improve the system?

Benigno López: I believe it was Churchill that said when you think about future generations you are doing the right thing. Well the benefits of this reform will be felt by my successor and the next government of Paraguay because it will take up to five years for it to achieve its full effect. Don’t get me wrong, the state’s tax take will increase next year, but there are many different mechanisms that this law improves and it will be between three to five years before we see the complete increase in fiscal revenues.

Our tax reform is just one piece of wider, structural changes that this country needs to ensure economic growth and spread the benefits of that growth more fairly among our population. It’s not a radical change to the tax system, as the overall burden on companies remains at 10%, meaning we still have the lowest tax in the region. But we are eliminating tax deductions for the highest earners, which is a progressive move that improves income equality. The extra revenues the reform generates will be earmarked directly for investment in health, education and infrastructure, which is why it is part of the more general reform effort. Finally, there are some technical measures, which might not generate headlines but should help improve the system. For example, we will be able to share information with other institutions so that we can fight tax evasion and the informal economy.

How will Paraguay balance the nation’s health and economic needs while fighting coronavirus?

BL: It’s a tough challenge but hopefully we have a few factors in our favour. We reacted very early and were one of the first governments in Latin America to close schools and start social distancing measures. We also have experience in dealing with epidemics and our health minister dealt with a recent dengue outbreak very well. Of course, this is new for the whole world and nobody knows what measures we will have to take in the future but, so far, we have been ahead of the curve.

There are also some natural advantages. Our young demographic means that less of the population should require critical care, while there are early signs that the virus may spread more slowly in hot southern climates than in cool northern ones.

But I am not trying to downplay the severity of the situation. There is no doubt this is a serious economic challenge for Paraguay. In particular our exports are suffering because commodity prices are down. Meanwhile, as a small, open economy we rely on international imports that will also be reduced as factories around the world are shut. The real challenge for Paraguay will be on the economic front. I hope that as the developed economies recover, they can take the measures to kickstart global trade.

Source: Latam Investor

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