Here is an interesting article that appeared in Nacion.com
If free zones -with their tax breaks and other privileges- are good for the economy, why isn’t the entire country made into a free zone?
EDITORIAL
Why not provide companies founded with Central America capital the same benefits and privileges enjoyed by foreign firms operating under free zone regimes? The job creation and contribution to the economy that can be made by companies in free zones because they enjoy these privileges should be able to come from business founded with Central American capital as well, which in contrast to foreign firms, have to deal with excessive regulations and bureaucracy in the States of Central America.
As Juan Carlos Hidalgo points out well in his opinion piece in Nacion.com, “… while firms located in Free zones are offered all kinds of facilities and exemptions, the local business community has to support relentless taxes and regulatory ordeals. According to the World Bank’s doing business index, the average Costa Rican entrepreneur pays total tax on profits of 58%, higher than the average in developed countries and higher even than in Latin America. ”
Hidalgo adds that “… In this regard, a study by economists at the Paris-Dauphine University found that free zones sometimes give an excuse for countries to maintain protectionist barriers around the rest of the economy. The reason? These schemes allows them to appear to be open without backing a genuine liberalization of the whole country. ”
As an article in The Economist points out, “…History can give anxious trade ministers pause. Free zones -enclaves where exporters and other investors are exempted from taxes, tariffs and regulations- create distortions in the economy. Other costs include investment in infrastructure and foregone tax revenue. The hope is that these will be outweighed by the increase in jobs and trade. In reality, many free zones fail. Performance data is difficult to find because the effects of the zones are difficult to separate from other economic forces. ”
Is not this what happens in all Central American countries?
Tom
It’s a no brainer that, for the good of the country and its people, the whole country should be a duty free zone.
But, that would mean the government has less to tax, and so it would have less power. Governments are all about taxation and power. Lower revenue mean less opportunities for corruption and crony-socialism (in the name of capitalism).
A country wide free zone will remain a dream, sadly.
Regards
Harry