August 1, 2016 Print

A clearly defined and widely respected rule of law is necessary to eliminate the arbitrary exercise and abuse of executive and administrative power. Atlas Network partner Fundación Eléutera has launched a campaign for tax code reform in an effort to reinforce the rule of law and to protect merchants and taxpayers in Honduras.

“The long-term goal is to have a tax code that protects and respects taxpayers' human rights under a system of clear rules and procedures that will also allow the taxpayer to legally challenge the Tax Administration´s decisions in a court of law,” said Guillermo Peña Panting, executive director of Fundación Eléutera. “During the last two years, the Tax Administration has behaved arbitrarily in its tax collection procedures with the excuse of curbing tax evasion, ignoring due process rights while using excessive military force to carry out tax raids and close down temporarily hundreds of businesses without a judicial order. Most of the businesses were closed down for ridiculous first offences such as not having an updated phone number or email on the receipts.”

This disregard for the rule of law has been a significant hindrance to Hondurans seeking to improve their economic standing, and the threat of arbitrary harassment by the military produces a chilling effect for aspiring entrepreneurs. The current system works to the detriment of the least fortunate in Honduran society, rather than encouraging those who want to improve their lives.

“Our focus has been to remove all use of military force in tax collection procedures, as well as to ensure that taxpayers can defend themselves in court of law before having their businesses closed down after they´ve been accused of wrongdoing by the Tax Administration,” Panting said. “The current system makes it extremely hard and expensive for taxpayers to get access to court; as such, we aim towards the removal of all administrative and financial barriers to court access as a means to strengthen the rule of law and protect taxpayers’ human rights.”

The Fundación Eléutera campaign, funded in part by an Atlas Network grant, began earlier this year with the publication of a policy paper criticizing a new government-proposed tax code, followed by a paper providing its own counter-proposal. The authors of these reports, Jorge Constantino Colindres and Guillermo Bográn, were frequently cited in newspaper articles and other media. The papers gained so much traction that Colindres debated the head of Honduras’ Tax Administration, Miriam Guzman, on national radio.

So loud was the public outcry in response to Fundación Eléutera’s research that the Honduran government scrapped its tax code proposal a few months ago and began working on a new one. During that time, Fundación Eléutera continued to stand up for Honduran taxpayers, property rights, and the rule of law. Then, on July 20, the executive branch sent its new tax code to the Honduran Congress — and, in a major victory for the rule of law, the new draft included nearly half of the 20 proposals made within Fundación Eléutera’s policy papers.

“By incorporating a series of due process protections for the taxpayers, the new tax code will give businesses enough breathing space for them to speak freely and criticize the administration in public, while pushing forward a comprehensive tax reform without fear of facing arbitrary punishments and confiscations by the tax authorities as retaliation,” Colindres said.

Panting said that one of the organization’s proposals that made its way into the new draft will have a particularly large impact.

“Article 207 of the draft paves the way for a profound structural tax reform for which we have been proposing a single flat tax system,” Panting said. “Our goal is to reduce arbitrary behavior through the tax code and the move towards a flat tax reform. During the next 12 months, pending fundraising efforts, we intend to carry out a media campaign to educate taxpayers on their constitutional rights and on how a flat or simplified tax system is beneficial for everyone. We´ll also be compiling research from abroad in order to bring it down to policymakers in Honduras and show them the benefits of implementing a flat tax, both for tax revenue as well as economic growth, attraction of investments, and reduction of corrupt practices within the Tax Administration.”

A third Fundación Eléutera study, “Analysis of the New Draft Tax Code,” warns that despite accepting many of the organization’s proposals, the new tax code “continues to fail in the most essential ways to ensure legal certainty and respect for the human rights of taxpayers.”