Bill 636.

Summary.

The bill amends Article 11 of Law 76 of 2019, which approved the Tax Procedure Code of the Republic of Panama. It would require the National Assembly (Asamblea Nacional), before beginning the third debate, to request an economic impact assessment from the Ministry of Economy and Finance (Ministerio de Economía y Finanzas) for bills or legal instruments that establish, amend or extend tax incentives, exemptions or reductions, create national taxes, or may affect revenue. The assessment would cover estimated tax expenditure, economic objectives, a cost-benefit analysis, and expected effects on revenue and economic activity.

The Ministry would prepare and publish an annual report identifying current incentives, their legal basis, objectives, beneficiary sectors, applicable duration, estimated tax expenditure and expected benefit. It would post the report on its website in coordination with the National Authority for Transparency and Access to Information (Autoridad Nacional de Transparencia y Acceso a la Información), under Law 6 of 2002. Information would be descriptive, aggregated and statistical, excluding identifiable personal data and confidential taxpayer information. The report would also identify and estimate the fiscal cost of incentives excluded from evaluation, without bringing them under the Code’s review mechanisms.

The Ministry would evaluate incentives every two (2) years against their objectives, economic and revenue effects, cost-benefit relationship, distributional incidence, counterfactual comparisons, and risks of base erosion and profit shifting. It could use information available through international information-exchange agreements while protecting confidentiality. After at least three (3) consecutive evaluation cycles without consistently favorable results, it would issue a reasoned recommendation to amend or terminate an incentive.

Legal instruments establishing, extending or amending incentives would include a technical justification, estimates and cost-benefit analysis, measurable targets, a baseline, a distinction between new investment and existing activity, an assessment of policy alternatives, and an estimate of benefits for the country. They would also contain a termination clause providing for automatic expiry unless extended by an express law, measurable criteria and an evaluation procedure, transitional provisions for earlier commitments, and publication of the report supporting the decision. A periodic review period would also be specified.

The Ministry would publish open-format information on incentives by sector, regime and year, beneficiary companies, tax expenditure and employment, while protecting taxpayer confidentiality. The National Assembly, through its Economy and Finance Committee (Comisión de Economía y Finanzas), would review incentives every two (2) years and issue conclusions within three (3) months after the corresponding report. The Ministry could schedule a phased assessment of existing incentives, prioritizing those with the greatest fiscal impact within no more than four (4) years. The Executive Branch would issue regulations for the added articles within six (6) months of promulgation, covering methodologies, report formats, priorities and standards related to commitments undertaken by the Republic of Panama. The bill would concern beneficiary companies, sectors receiving tax incentives and taxpayers.