The business climate for companies in Nicaragua prevents them from growing and expanding, so many business owners feel they are working just to cover their costs, including increasingly onerous taxes, fines and bribes imposed on them by the voraciously tax-collecting state institutions in the country that consumes the most expensive electricity in Central America.
A business owner in the commercial sector told CONFIDENCIAL that the main problem of companies in Nicaragua is the voracity of customs and property taxes, "since they all act as if the private sector were an enemy that must be taken on and everything squeezed out".
The greatest impact on Nicaraguan economic stakeholders is inflation, which is imported and is increased by the regime's fiscal policy. "That is the real adverse factor that businesspeople suffer! The 2019 tax reform-imposed VAT (Value Added Tax) and ISC (Selective Consumption Tax) on many components that previously did not pay these taxes, which raised production costs, and then add the cost of electricity and fuels," explained an industrialist who also asked to keep his name confidential.
A business owner whose activity depends on the constant import of supplies, pointed out that there is "too much bureaucracy, too much time wasted in the procedures", in entities such as the Ministry of Health (MINSA – Ministerio de Salud) , the General Directorate of Customs Services (DGA - Dirección General de Servicios Aduaneros), and the Institute of Agricultural Protection and Health (IPSA – Instituto de Protección y Sanidad Agropecuaria) which he attributes in part, to the hemorrhage of human capital that affects the country, including the Government Administration.
Tax Barbarism Against Companies
Going into details about the problems faced by local companies, the industrialist highlights that agriculture and the livestock sector, suffered the onslaught of a tax reform that levied 15% value added tax (VAT) on urea and other inputs, not to mention that "there are agrochemicals that pay 40% selective consumption tax, which is an outrage - barbarism," he said.
He adds that agricultural machinery such as harvesters, tractors, plows, tankers, as well as those that are specific for crops such as peanuts, sugar cane, rice, etc., are taxed with VAT, which makes such machinery and its spare parts unpurchasable. As a result, sugar mills, coffee mills, rice mills, peanut processing plants, etc., "have seen their costs skyrocket due to the tax policy".
This industrialist notes that his sector is suffering an increase in the direct costs of raw materials and inputs in general, "because the State, with the purpose of obtaining income to finance the National Budget, has over-taxed everything and this affects the competitiveness of all sectors and companies in Nicaragua".
Apart from the tax issue, he points out that companies must pay very high electricity rates which, together with labor, constitute the most important -and most costly- working capital component for an industry, not to mention fuel, noting that without electricity a sugar mill, a rice mill, a coffee mill, or a bean processing plant would not function.
He recalled that, although millions of dollars were invested to increase the generation capacity and change the energy matrix, neither the industrialists nor the businesses in the tourism sector can say that the rates offer them a respite, so that the main headache of a hotelier is the electricity bill, which rises every time a client turns on the air conditioning, an indispensable element to be able to offer a certain level of comfort.
The agricultural industry suffers the same situation when it has to pay high amounts for electricity consumption, to the point that "the energy policy is recessive in this country, and makes us less competitive", he pointed out, though not ignoring the importance of fuels, which are also expensive.
"What farm can operate without tractors, without harvesters, without aviation to fumigate? How do you move your merchandise to distribute it in the domestic market or take it to the ports to export it?" he asked, recalling that the costs of diesel and gasoline impose enormous limitations on their operating capacity.
Nicaragua's "Brain Drain”
In reference to obtaining permits to import products purchased in international markets, the importer, mentioned above, said that the procedures have become more cumbersome, even in cases where the products have been registered for a long time and only require renewals over the years.
Although having to repeat these procedures entails an expense - and although his company has been a victim of the voracity of government agencies to collect money - this administrator believes that, beyond extracting money from them (because what the government collects is minimal: one dollar for one thing, two dollars for another), what is happening is that the ministries and government institutions no longer have trained personnel.
"I don't know if it is because of the brain drain, or because of the massive migration that has taken place in the country, but the capacity of those in charge of interpreting a law, of making a calculation or reading a product, has become almost non-existent. And that now happens in MINSA, the DGA and IPSA, where one notices the government workers’ incapacity that makes them almost inoperative in things that traditionally were done without any problem because the product is the same, the formula is the same, and the price is the same," he detailed.
He explained that even the truck drivers complain because it used to take one or two days to do a procedure, but "now people are slower, they ask more questions, plus they cannot make decisions, so they have to go to a supervisor to ask how to proceed in certain circumstances", he added.
He supports the brain drain thesis, because he observes that many of those who work in the government entities are new workers, a phenomenon that also occurs at the level of headquarters, where many people have changed. What does not change is that "wherever they have the opportunity to collect fees and fines, be it because of uncertainty about the value, because the weight inside the container is poorly distributed, or for whatever reason, they will look for ways to collect more".
This toxic system has made some companies in Nicaragua decide to leave, while others were forced to close because they could no longer bear it. This was particularly the case for small entrepreneurs in the commercial sector, who had neither the financing nor the structure to hold on because their cash flow depended to a large extent on the daily operations.
This article was originally published in Spanish in Confidencial and translated by our staff.