Government moves to plug tax holes

STARTING at the end of the month 166 companies will become collection agents for the tax man under a change in regulations approved by the General Directorate of Revenue (DGI).

Under the current regime, retailers are responsible for collecting the 7% sales tax.

But from Nov. 1, the responsibility will be split between wholesalers and retailers, with each collecting 3.5 percent.

The formula was already used in the case of state purchases greater than $20,000. That limit disappears with the new regulations and   must now be used regardless of the amount of the contract reports La Prensa

In addition, banks will be required to withhold money to be paid to the government in the form of taxes.

The change is being made to reduce tax evasion, which is estimated at 40 to 50 percent of the amount collected. This is largely due to companies failing to report sales, the government says.

By taxing both wholesalers and retailers, the government hopes to better identify companies who may be cheating.

“Reducing tax evasion is a priority in our work agenda and this update will allow us to implement good international practices in Panama to improve the collection of this tax,” said Revenue Director Publius Cortes

Business leaders, including the Chamber of Commerce and Industry have denounced the plan.