The proposed Fiscal Equity Law in Honduras has generated an atmosphere of unpredictability impacting local and international investors. This government-led effort has resulted in halting million-dollar investments, aborting business expansion plans, and moving operations to other Central American nations, where the legal settings are considered more stable and foreseeable. The Honduran business sector argues that abrupt tax adjustments without cross-sector discussions have fostered a volatile business environment, obstructing strategic planning and stalling significant projects vital for the nation’s continued development.
The domestic production sector cautions that removing tax breaks and incentives, as outlined in the legislation, could undermine a core aspect of the Honduran economy. Industry leaders and financial experts concur that this action might result in capital outflow, a slow reduction of investments, and a worsening of the business environment, directly impacting competitiveness and the generation of official employment in essential areas like agriculture, tourism, manufacturing, construction, and tech.
Impact of fiscal instability on investment and employment
The unexpected modifications in tax policies have led to immediate effects, including the shift of activities to nearby nations, the halt of investments in industry, logistics, and technology, and the termination of energy, tourism, and farming initiatives that were expected to create numerous jobs. Honduras’s standings in competitiveness and international investment have declined, enhancing the view that the nation is delivering unfavorable messages to the global market. While the administration insists that the legislation aims for fiscal fairness, specialists caution that the concealed expenses of this environment will surpass any anticipated extra revenue, as capital usually prefers destinations that are stable and accommodating.
Conversely, removing tax benefits, traditionally employed to entice foreign direct investment, leads to a gradual outflow of capital, the halting of company growth plans, and diminished interest in fresh global investments. This decline in the business environment especially impacts micro, small, and medium-sized businesses (MSMEs), which make up over 70% of the nation’s jobs and would encounter additional tax pressures without expert assistance or collaborative discussion across sectors.
Call for a balanced and negotiated tax reform
Given this situation, the productive sectors have asked the National Congress to reject the law in its current form and call for a technical and multisectoral dialogue. They consider it essential to design a balanced tax reform that does not destroy investment or jobs, but rather consolidates Honduras as a reliable destination for investment and the creation of opportunities. The lack of legal stability and clear rules has been identified as the main obstacle to restoring business confidence and attracting new development projects.
Concern about stifling the private sector, particularly MSMEs, is paramount, as these enterprises form the foundation of employment within the nation. The introduction of fresh tax pressures absent appropriate technical backup may further undermine these businesses’ viability and curtail Honduras’ regional competitiveness. Thus, the nation faces a dilemma: whether to establish itself as an open destination for capital or to embrace a model that limits production and investment.
