[private] The Honduras government, looking for an inventive way to raise taxes, has strayed into a bizarre territory of “taxing” bank transactions. The Honduran business community is putting up a fight.
On August 1, after the announcement in the Honduran official publication: “La Gazeta,” a security fee was imposed on business payment transactions. For business accounts that have Lps. 120,000 or more a 0.3 percent fee will be deducted for “tasa de seguridad” – a security fund. The tax – or fee, depending how we look at it, would be used to fund the country’s security budget.
A coalition of Honduran businessmen has filed a motion to prevent the “tax” from taking effect. “I wouldn’t mind if it all went to security, but the funds will end up in general treasury,” said Ana Svoboda, president of Bay Islands Chamber of Commerce. “We have no guarantee it would be used for that.”
The Honduran government is following a “tax model” that is pretty rare in any country, but in use for several years in Venezuela. “They are following a model that Chavez had introduced where they take out fees for education, health, or anything they need extra money for,” said Fernando Suarez, a Roatan businessman and ex Charge d’affaires at a Honduran embassy in Caracas, Venezuela. “It’s especially not fair to businesses doing a lot of banking transactions with small profit margins.”
This wasn’t the only bank shake up for Honduran consumers this summer. On July 25, Honduras detached the lempira from the dollar where it had been placed six years ago. The floated lempira initially showed some strength towards a dollar but gradually weakened and is now where it began, around Lps. 18.94.
While the fluctuations between the two currencies were of little notice to most customers, what did raise eyebrows was that individuals trying to change dollars at local banks were turned back. Businesses such as The Bulk Gourmet, a food store in French Harbour, found itself in a tough situation. The Bulk Gourmet has to purchase all its products in US dollars, but receives most of its payments in lempiras. “We needed to find dollars to pay our suppliers, but the bank people told us that we need a special permission and large amounts of dollars before we could purchase dollars,” said Cheri Wade, the store’s owner.
After the lempira was floated and purchased in a daily auction, according to AHIBA (Asociación Hondureña de Instituciones Bancarias), the Honduran Central Bank assigned a daily allowance of $300,000 to banks and small exchange clients. This amount is not sufficient, especially as much of the cash is bought up by currency speculators who are some of the people lined up to benefit from floating the Honduran currency.
The “no-buy dollars” complication also means added time in managing transactions for the Bay Islands businesses. Many businesses calculate their prices and salaries in dollars and now will have to devote additional time and resources of keeping up with fluctuating rates. “You just pick a date in a month and stick with it,” said Cam O’Brian, a Roatan businesswoman who remembers the times when her company Bay Islands Beach Resort, had to do accounting in dollars and adjust to the fluctuating lempira.
If individuals will continue to be prevented from buying other currencies with lempiras, the likely result will be loss of confidence in the lempira as an independent currency. That might happen quicker than most people think. The weakening of the lempira would erode purchasing power of most poor Hondurans and additional strain on their cost of living.
After the much publicized “Honduras Open for Business” conference in San Pedro Sula, it seems that the slogan was more ironic than realistic. Doing business in Honduras is becoming increasingly difficult and expensive. [/private]