A special security tax in El Salvador

According to Michael Lohmuller at Insight Crime, the government of El Salvador is reconsidering a a push to establish a special tax to fund security programs. Previous proposals have been met with resistance in the past as businessmen feel that they already pay too many formal and informal taxes with regards to insecurity and their lack of faith in the current government to be transparent and spend their tax dollars wisely.

When I was in El Salvador, many people told me that the rich don’t feel the effects of insecurity the same way that low-income Salvadorans do. I agree. However, we all know that they do suffer the effects financially and in terms of mobility. Businesses pay extortion money. Fewer people visit their restaurants and hotels. They can’t move freely in their country whether they are in Escalon or heading to the beach.

An area that I hadn’t thought of was embarrassment. Business leaders, especially those who operate internationally, are embarrassed to hear their country described as the most violent one in the world. It’s not only bad for business but they cringe when they tell people where they are from. Many of the people that they mingle with socially and interact with professionally only know El Salvador as a place of civil war, murder, and child refugees. It was unclear whether the interest in erasing that reputation would lead them to pony up more resources through increased taxation.

I mentioned to someone that perhaps there would be a greater likelihood for the FMLN and ARENA to emphasize tax evasion instead of tax increases. We all suspect that there are millions lost to tax evasion each year. I said that the US Treasury Department could probably help. I haven’t looked it up, but I was told that is already being done. The US is working with the Salvadoran government to improve tax collection. That might be one good area to scale up our investments. However, it still might not be sufficient and a special security tax might be needed.