The future of employment in Honduras after tax reform

The dialogue surrounding the Tax Justice Law in Honduras has sparked strong discussions between the private sector, business groups, and government officials. The proposed tax reform, advocated by the current administration, has been perceived by business leaders as a significant risk to employment stability and the ongoing operation of numerous companies in the country. The primary issue is the removal of tax benefits that have been crucial for the growth of industries like manufacturing, agricultural exports, tourism, and construction, which, as per business representatives, might lead to numerous shutdowns and widespread job losses, particularly affecting small and medium enterprises.

The expected impact of the reform is not limited to the business sector, but also extends to the Honduran family economy and social fabric. Analysts and union leaders warn that the reduction in economic activity, together with the departure of companies, could translate into an increase in structural unemployment, growth in informality, forced migration, and a collapse in domestic consumption. This scenario is exacerbated by the current situation in the country, where more than one million people are looking for decent jobs and informal employment affects a significant part of the population.

Consequences of removing tax benefits and the threat to jobs

The Tax Justice Law provides for the elimination of tax exemption and relief regimes, affecting more than ten productive sectors, including free zones, tourism, renewable energy, and manufacturing. According to data from the business sector, more than 400,000 direct jobs and more than one million indirect jobs currently depend on these regimes, especially in the agricultural and industrial supply chains and exports. The elimination of these incentives could lead to the closure of factories, workshops, shops, and farms in both urban and rural areas, leaving thousands of Hondurans without formal employment and increasing pressure on the informal sector.

A report from the Honduran Council of Private Enterprise (Cohep) suggests that the tax reform could adversely affect industries like tourism, manufacturing, and agribusiness. For instance, within the manufacturing sector, around 40,000 positions and over $733 million in exports may be jeopardized, while in tourism, the potential impact might include the loss of numerous jobs both direct and indirect, along with a sharp drop in investment and wages. Additionally, the rise in operational expenses, particularly for micro, small, and medium-sized businesses, would make their market survival unfeasible, thereby worsening the issues of unemployment and underemployment in the nation.

Impacts on society and suggestions from private enterprises

The social impact of the reform is projected to be irreversible, with the risk of increasing poverty, forced migration, and mistrust both nationally and internationally. The overflow of the informal sector and the loss of formal jobs with social security could deteriorate the quality of life and tax collection, affecting the entire Honduran population. Business leaders are also concerned about the domino effect on social stability, warning that the destruction of jobs could further impoverish the country.

In light of this situation, the business community has offered solutions such as lowering the sales tax from 15% to 12% to leave more cash in the hands of citizens, boosting the economy and creating jobs. They also believe that rather than removing benefits for all industries, inspections and audits should be conducted on tax-exempt businesses that engage in irregular activities, utilizing the powers already provided by existing laws. The business sector emphasizes the importance of discussion and consultation with all productive parties prior to enacting a reform that may have lasting effects on the nation’s economic and social growth.

The discussion regarding the Law on Tax Equity remains heated, with pressing appeals for Congress to critically assess the details of the legislation and steer clear of choices that may exacerbate the core issues of Honduras, including joblessness, poverty, and migration.