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El Salvador The Tax System
Taxes, including sales, export, property, income, capital
gains, profit, and stamp taxes (a 5 percent levy on goods and
services), accounted for a 95 percent annual average of the
Salvadoran government's revenue between 1976 and 1985. Tax
revenue as a share of GDP increased from 11.6 percent in 1972 to
14.7 percent in 1986. Domestic sales taxes, representing 37
percent of total current revenue in 1986, were the most important
source of revenue for the government. Taxes on international
trade transactions provided an additional 27 percent of current
revenue (two-thirds came from export duties), and taxes on
income, profits, and capital gains provided 19 percent. Property
taxes constituted only 5 percent of government revenue.
All residents, regardless of citizenship, were required to
pay personal income tax, which was assessed according to a
progressive scale, with a graduated minimum tax plus a
percentage. In 1986 wage earners who garnered less than the
equivalent of US$2,400 per year paid no income tax, while those
whose income exceeded the equivalent of US$50,000 paid at a 60
percent rate. The maximum corporate tax was also set at 60
percent. In addition, businesses were subject to a net worth tax
based on their net capital investment; the maximum rate of this
levy was 2.5 percent.
The relative importance of export duties as a revenue source
has been problematic for the government. Besides being unpopular
among coffee producers, these taxes fluctuated with world coffee
prices. In 1986, for example, government revenues rose by 57
percent, compared with 1985. Although higher income taxes, stamp
taxes, and increased foreign aid also increased revenue in 1986,
the size of the increase resulted largely from a jump in world
coffee prices from US$1.43 per pound in 1985 to US$1.71 per pound
in 1986. Conversely, when world coffee prices fell to only
US$1.11 per pound in 1987, the Salvadoran government reported a
fiscal deficit of US$160 million.
Data as of November 1988
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