Remittances will exceed 2023 tax revenues: El Salvador

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By LatAm Reports Editor

The government closed the year with more than $7 billion collected from taxpayer-paid taxes, according to Treasury data.

Both the Salvadoran population living within the country and the one living abroad pushed the economy in 2023.

Taxpayers in the country contributed $7,122.6 million by paying their taxes during the 12 months of last year; while compatriots injected $7,393.6 million by remittances they sent to their relatives in El Salvador.

This indicates that, according to official data from the Ministry of Finance and the Central Reserve Bank (BCR), remittance income has already exceeded the figure collected in taxes in all 2023 by $271 million.

Economist Tatiana Marroquín explained that these data tell us is that remittances are very important for economic dynamics; just as the economy and the state depend on income, there is also a dependence on remittances.

Marroquín considered that both income in remittances and taxes in those magnitudes allow us to say forcefully that there is a very large dependence on remittances for decades and remains to date.

During the year, shipments of money from abroad have been higher than those recorded in 2022, implying that compatriots continue to contribute more and more to the country’s economic dynamism.

Remittances’ income until November amounted to $7,393.55 million, but in December, the amount is usually increased, so 2023 would close better than 2022, which ended with $7,818.51 million.

Last November alone the country received $651.38 million, or $19.87 million more than in November 2022.

In the coming days of January, the BCR will release data on how much it entered from remittances last December, so if the amount is equal, higher or even slightly lower than in December 2022 ($767.98 million), the overall remittance figure would exceed $8 billion by 2023.

In fact, the Inter-American Development Bank (IDB) indicated that remittances in El Salvador could reach a new record by reaching $8.198 million in 2023, which would represent almost 6% more than in 2022.

The BCR has also projected that remittance revenues will exceed $8 billion, which is good news for the economy because it helps to boost it, especially through consumption, because that increases the collection of taxes such as VAT.

VAT and income income rose

During 2023, taxpayers contributed more money than the government estimated in taxes, especially in the payment of VAT (value Added Tax) and Income Tax (ISR).

The fiscal collection report of the Ministry of Finance in December indicates that in 12 months they raised $7,122.6 million, representing $326.3 million more than in 2022, an increase of 4.8%, as revenues in the same period of 2022 were $6,796.3 million.

Of these funds, what Salvadorans paid for VAT were $3,166.9 million, or $142.1 million more than the previous year and represents a 4.7% increase.

The largest amount of those resources that entered the treasury coffers comes from VAT charged on imports, i.e. products purchased abroad. And the other part is the tax returns that taxpayers have made.

This VAT collection, until December, is higher than that budgeted by the government, as it projected that as of December 31, 2023 it would collect $2,950.3 million, but the income was higher by $216.5 million. And when compared to what it collected until December 2022, the increase was $142.1 million.

This increase in VAT revenue would be related to the high cost of living in the country, due to the increase in the price of the products and services that citizens buy, because the more expensive it is what they consume, the more income goes into the hands of the Treasury for the taxes they cancel.

In 2022 and 2023, tax revenues grew quite a bit and when you look at what have grown, for example, in 2022 it was VAT, which has to do with the increase in the price of things. So, just as we’ve had historical inflation, there’s a direct relationship with the collection, the economist explained.

The specialist added that the results of the collection recorded at the end of 2023 can also show the increase in prices of what is consumed and that has influenced not only higher VAT revenues but also income, because companies sell more and therefore achieve that collection.

In fact, the price of basic basket products is increasing.

Last December, the costs of food and non-alcoholic beverages in El Salvador increased by 3.98% compared to those of November, according to the Consumer Price Index (CPI) of the Central Reserve Bank. That is, out of every $100 spent on food, Salvadorans had to spend almost $4 extra from one month to the next.

For example, the average cost of the basic basket for a family of four in the urban area was $255.6 in November, according to the latest data from the National Bureau of Statistics and Censuses (ONEC).

While in rural areas it was $189.4 for a family group of four members.

But in addition to the taxes collected by the basic basket products that Salvadorans bought the most expensive, the government also obtained money for the VAT charged in alcoholic beverages, soda, cigarettes, among others.

In this product group Hacienda collected $231.7 million in the year it just ended.

However, the amount is lower than projected by the Treasury for 2023, as it expected to collect $251.8 million in taxes for that consumption, or $20.1 million less.

Another tax paid by Salvadorans and which means a high volume of income for the government is the Income Tax. According to the December report, it was $188.7 million raised last month with an increase of $5.3 million over Nov.

But the government’s accumulated 12 months of 2023 is $2,871.9 million from the ISR, an increase of $89.6 million compared to the same period of 2022 when $2.782.3 million was raised.

And if you compare the amount that the Treasury planned to collect, an increase of $102.0 million is also reflected, as the target was $2,769.9 million.

Marroquín also mentioned that in the results of the collection, in addition to inflation, there have been dynamics in which the Treasury has done some actions against evasion and circumvention, which we do not know exactly what the results are, but which may have influenced that it was greater than the previous year.

This article has been translated from the original which first appeared in El Salvador