Brazil & Southern Cone - November 2010 (ISSN 1741-4431)

On 1 November, the Paraguayan chamber of deputies ratified its position to postpone the implementation of the proposed income tax law until 2013, the last year of president Fernando Lugo's term in office.   After failing to pass the “Impuesto a la Renta Personal (IRP)" bill in July, when both chambers of congress decided to postpone its implementation, President Lugo exercised a partial veto power in order to reintroduce the bill for approval.  The chamber of deputies' decision means that congress has defeated Lugo's partial veto; this also follows the 7 October decision in the senate to postpone the implementation of the law. 
Congress' decision to postpone the implementation of the IRP a second time clearly demonstrates the strong opposition Lugo faces in congress.  The creation of the IRP is a crucial part of the “fiscal adequacy and administrative reordering law" (Ley2421/04) aimed at modernising public finance, one of Lugo's priorities. Paraguay is currently the only country in South America that does not have an effective income tax system. Thus, the Paraguayan state receives low levels of tax revenue when compared to other countries in the region. Furthermore, the lack of a comprehensive tax system also means that the state is not able to oversee domestic economic activity effectively, which is characterised by a large informal sector.  The chamber of deputies defeated the bill with 44 votes against, 30 in favour and one abstention.