Written by: Alfredo Rodríguez
As should be expected, the Guatemalan tax system is based on constitutional provisions. The Political Constitution of the Republic establishes principles that have fiscal implications in various provisions. It begins with the citizen’s duty to contribute to public expenditure, in the manner prescribed by law. This provision contains what is known as the principle of generality whereby all Guatemalans are called upon to cover public expenditure through the payment of various taxes. In theory, the only exception to this duty is an individual’s ability to pay taxes. Thus, a person who is unable to pay taxes would not be obliged to contribute.
From the State’s perspective, it is established that it falls upon the Congress of the Republic to decree ordinary and extraordinary taxes according to the needs of the State. Congress also determines the basis for their collection. The same provision is contained in the chapter of the Financial System that establishes the principle of legality in tax matters, which states: Congress is exclusively responsible for enacting ordinary and extraordinary taxes, levies and special contributions, according to the needs of the State and in accordance with tax equity and justice. It is similarly responsible for determining the basis for the collection.
The same principle of legality recognizes what is known as a preference of law, which recognizes the hierarchical nature of provisions, those which contradict or misrepresents the legal norms regulating the bases of tax collection, are null and void. It also establishes the scope of the tax regulations, indicating that the regulatory provisions may not modify such bases and are limited to regulating the administrative collection of the tax and establishing the procedures that facilitate its collection.
The principle of legality, in addition to the reservation and preference of law, recognizes that taxes must be adapted to tax equity and justice, a principle which, although not developed, has been interpreted as an additional limit to the power to decree taxes, duties, and contributions.
In the form in which the principle of legality is worded, it comprises:
1. Reservation of law: taxes and bases of the collection must be contained in the law
2. Preference of law: any provision that contradicts or misrepresents what is contained in the law is null and void
3. Principle of equity and tax justice
4. Limitation to the regulatory tax content
Another essential principle of taxation is the principle of capacity to pay, which states that the system must be fair and equitable. For this purpose, the tax laws will be structured according to the principle of capacity to pay.
The capacity to pay has been understood as the economic ability of the taxpayer to fulfill its duty to contribute to public expenditure. This ability is measured by capacity disclosures that are classified into direct and indirect. The direct ones reveal an undoubted ability (profits, for example) and the indirect ones presuppose the existence of ability, such as income, assets, and consumption. If the taxpayer has income, assets, or consumption, the economic ability is presumed; however, in reality, he may lack such ability (for example, he may have more expenses than income, or the acquisition of assets or consumption may have occurred with borrowed money).
In the same rule where the principle of ability to pay is established, two (2) constitutional prohibitions are set. The prohibition against confiscatory taxes and the prohibition against double or multiple taxation.
The prohibition against double or multiple taxation is defined as the same generating event attributable to the same taxpayer is taxed two or more times by one or more taxing authorities for the same event or period of taxation. These characteristics of double or multiple taxation are clearly stated in the constitutional provision.
In contrast, there is no direct reference to what should be understood as a confiscatory tax. There is a Constitutional provision, however, that does establish when a fine has the character of a confiscation tax. It states that the confiscation of property and the imposition of confiscation fines are prohibited. In no case may the fine exceed the value of the omitted tax.
We see that the constitutional parameter for determining whether a fine is confiscatory is whether it exceeds the value of the omitted tax. In the case of the confiscatory tax, it has been considered that it will be confiscatory if a significant part of the taxpayer’s assets is subtracted. Other countries, through legal norms or judicial rulings, have established parameters to determine the moment when a tax becomes confiscatory, in Guatemala there is no such parameter.
In subsequent articles, we will continue developing the Guatemalan tax system.