RESTRICTED
WORLD TRADE WT/ACC/PAN/7/Add.1
29September 1995
ORGANIZATION(95-2867)
Original: Spanish
ACCESSION OFPANAMA
Communication from Panama
TheGovernment ofPanama hassubmitted theinformation concerning internal support and
export subsidies foragriculture andfiscal incentives forindustry reproduced hereunder.
_______________
NOTIFICATION OFFISCAL EXEMPTIONS
GRANTED BYPANAMA TOINDUSTRY
SCOPE OFTHE NOTIFICATION:
TheGovernment oftheRepublic ofPanama submits fortheconsideration oftheWorking Party
thefollowing legislation regarding subsidies toindustry, inaccordance withthenotification requirement
oftheWTO Agreement onSubsidies andCountervailing Measures.
Panama 'sindustrial policy encourages industrial development bygranting taxexemptions
generally applicable toallenterprises wishing tocome under thisregime.
Direct assistance intheform ofpayments toproducers, financial assistance tospecific sectors
andother similar measures arenotapplied.
Wehereby submit alistoflaws covering thecurrent industrial development regime:
INCENTIVES FOR SMALL AND MEDIUM-SIZED ENTERPRISES:
Background andauthority: LawNo.3of1986 isdesigned toencourage small andmedium-sized
enterprises intheir industrial andassembly activities. Aregime oftaxexemptions exists forenterprises
thatproduce forthedomestic market orforexport. Enterprises must beentered intheOfficial Industry
Register oftheMinistry ofTrade andIndustry before they canbenefit from theincentives provided
forunder thislaw.
Description oftaxexemptions:
Enterprises thatgear their industrial production tothedomestic market receive:
- Preferential treatment inthepayment ofimport duties onrawmaterials, semi-finished
orintermediate products, parts formachines andequipment, containers, packing andWT/ACC/PAN/7/Add.1
Page 2
other imported inputs. They payonly 3percent ofthec.i.f. value oftheimported
inputs, inaddition totheTaxontheTransfer ofTangible Personal Property (ITBM);
- exemption from income taxonreinvested netprofits toexpand production capacity
ortoproduce new articles. These enterprises alsocome under aspecial regime of
carry over oflosses forthepurposes ofpayment ofincome tax,andforthespecial
depreciation calculation stipulated intheLaw;
- exemption from property taxfor10years onland, structures andinstallations intended
formanufacturing, fullexemption from payment ofincome onprofits from sales on
thedomestic market fortheenterprise 'sfirst fiveyears ofproduction, anda50per
cent exemption forthesubsequent three years. These exemptions areapplied to
enterprises intheregions specified inthelaw.
Enterprises wholly engaged inproduction ofexport receive:
- Full exemption from taxes onintroduction, contributions, andcustoms duties, fees
andcharges, along with theITBM onimports ofmachinery, equipment andparts for
useintheproduction process.
- Account ofmaterials used inproducing theproduct, with seasonal earnings, forwhich
reason they arenotsubject toanyduties orcharges onintroduction.
- Full exemption from income taxonprofits, with theexception ofmining industries
orthose using thecountry 'snatural resources.
- Full exemption from export taxes.
- Full exemption from sales tax.
- Full exemption from production taxes.
- Full exemption from taxes ontheenterprises 'scapital orshares, except licence and
immovable property taxes.
Enterprises thatproduce partially forexport receive taxexemptions inproportion totheamount
intended forexport.
Duration oftheincentives regime: This regime isinforce for10-15 years. Itisestimated
that approximately 75per cent ofenterprises '
registrations willexpire intheyear 2002. Allthe
other registrations willexpire in2010.
NOTE:
1. Before Law No.3of1986 wasenacted, taxexemption incentives forindustry were based on
Decree No.413of1970, which wasamended byCabinet Decree No.172of24August 1971
andLaw No.92of22December 1976. Thetaxincentives under thisregime were broader
than those provided forunder Law No.3of1986, andinaddition, the20-year expiry date
ofthecontract waslonger. Atpresent there arefewenterprises under thisregime andtheir
contracts expire in1996.WT/ACC/PAN/7/Add.1
Page 3
2. Law No. 3of1986 hasbeen repealed asaresult oftheenactment ofLaw No. 28of
20June 1995, "Adopting general production taxincentives andestablishing other provisions".
Under thisLaw, enterprises thatwish toavail themselves oftheadvantages ofLaw No.3of
1986 cannolonger beentered intheOfficial Industry Register anditisstipulated thatthese
advantages willexpire when current registrations come toanend. Inaddition, theregistration
requirement toqualify forexemptions from income taxonexports, hasbeen done away with,
andthisexemption ends on31December 2002. Therequirement toqualify forpreferential
treatment toimport production inputs atonly 3percent ofthec.i.f. value oftheimported
product hasalsobeen eliminated.
INCENTIVES FOR SMALL AND MICRO-ENTERPRISES
Background andauthority: Law No.9of19January 1989 provides fortaxincentives for
micro-enterprisesandsmallenterprisesontheterritoryoftheRepublicthatareengagedinmanufacturing
activities using mechanized equipment, cottage industry methods oracombination ofboth.
Description oftaxexemptions:
- Fullexemption from income taxforthefirstfiveyears, 75percentforthefollowing
fiveyears and25percent while thecompany exists;
- Full exemption from stamp duty;
- Fullexemption from import taxonproduction andmaintenance equipment, parts and
rawmaterials;
- Exemption from immovable property taxforthefirst 10years;
- Exemption from taxoncapitalized dividends.
Duration oftheincentives regime: Enterprises willcease tobemicro- orsmall enterprises
inthesubsequent fiscal year when, after five(5)years ofoperation, they have increased thevalue
oftheir assets andcapital bytwenty-five percent(25%) ormore, or,forthree (3)consecutive years
orfive(5)alternating years, they increase bymore than twenty percent (20%) thevalue ofannual
sales ofonehundred thousand dollars ($100,000). Theregime willbeinoperation for15years.
EXPORT PROMOTION:
Background andauthority: Law No.108of30December 1974 establishes anexport incentive
mechanism fornon-traditional goods wholly orpartly produced orprocessed inPanama, bygranting
acertificate with which direct taxes canbepaid totheState.
Description oftheincentive: Persons engaged innon-traditional exports may apply fora
certificate forthepayment ofdirect taxes, termed aTaxAllowance Certificate (CAT), foranamount
equivalent to20percentofthenational added value oftheexported goods. Such certificates, made
outintheperson 'sname, aretransferable byendorsement, exempt from anykind oftaxanddonot
bear interest.
Duration oftheincentives regime: Under Law No.28of20June 1995 "Adopting measures
forgeneral production taxincentives andestablishing other provisions", CATs willbe20percent
ofthenational added value upto31December 2000. From 2001 toDecember 2002, CATs willfallWT/ACC/PAN/7/Add.1
Page 4
to15percentofthenational added value. Theincentive willbeeliminated from 2003. Inaddition,
itisstipulated thatthisincentive does notapply toenterprises inreceipt ofother taxexemptions.
EXPORT PROMOTION ZONES:
Background and authority: Law No. 25of30November 1992 establishes aspecial,
comprehensive andsimplified regime forthecreation andoperation ofexport processing zones.
Enterprises may work inmanufacturing, assembly, finished orsemi-finished products andservices.
Thepurpose ofthezones istopromote investment, thereby fostering Panama 'sscientific, technological,
cultural, education, economic andsocial development.
Description oftheincentive: Export Processing Zones aretax-free zones. Accordingly,
enterprises operating inthem andtheir activities willbe100percentfreeofdirect andindirect taxes.
Thecapital oftheprocessing zones andoftheenterprises inthem willbefreeofdirect orindirect
national taxes, including patent orlicence taxes. Earnings intheform ofdividends andinterest creating
shares, bonds andother securities issued bytheenterprises andplaced ontheinternational market will
befreeofnational direct orindirect taxes andduties.
Duration oftheincentives regime: Theduration ofthetaxincentives isindefinite.
INCENTIVES UNDER LAW-CONTRACTS:
Background andauthority: Inaddition totheabove regimes, theRepublic ofPanama hassigned
contracts with specific enterprises owing tothemagnitude oftheinvestment andthefactthatthe
investment calls fortheuseoflarge areas ofland, which State has, inmost cases, granted under a
concession system. Existing law-contracts include themineral resources exploration andexploitation
contracts regulated byDecree Law No.23of22August 1963, theContract between theState and
theRefinery ofPanama under Law No.31of31December 1992 toregulate therefining ofcrude
petroleum andtheContract between theState andVidrios Panameños S.A. under Law No.43of
17November 1977, forthemanufacture ofglass containers.
Description oftheincentive: Law-contracts grant exemptions from direct andindirect taxes
andestablish therights andduties oftheenterprises inconnection with their activities.
Duration oftheincentives regime: Contracts formineral resources exploration andexploitation
lastforvarying periods, depending onthesizeoftheproject. Thelaw-contract fortheproduction
ofglass containers willexpire in1998, whereas therefinery contract isoperative for20years asfrom
30September 1992.
NOTE: Weattach atable oftaxexemptions granted under thetaxregimes described inthisdocument.
Itshould benoted thattheinformation isconfined totheamount thatthesources were able
toprovide.WT/ACC/PAN/7/Add.1
Page 5
TaxExemptions Granted toIndustry
(Inthousands ofdollars)
Type Year
1991 1992 1993
Exemption from import tax 68,392.8 87,080.5 76,584.5
Exemption from ITBM onexports 405.7 869.1 1,081.9
Exemption from income tax 3,307.2 8,692.4 9,861.6
TaxAllowance Certificates (CATs) 3,298.9 2,738.3 3,316.6
Source: General Comptroller 'sOffice, Ministry oftheTreasury, Hydraulic Resources andElectricity Institute.WT/ACC/PAN/7/Add.1
Page 6
THE GOVERNMENT OFPANAMA PRESENTS THE FOLLOWING INFORMAL
COMMUNICATION ONINTERNAL SUPPORT AND EXPORT SUBSIDIES
BASED ONTHE MODEL OFNOTIFICATIONS OFTHE
AGRICULTURE AGREEMENTWT/ACC/PAN/7/Add.1
Page 7PANAMA
NON-PRODUCT-SPECIFIC AGGREGATE MEASURES OFSUPPORT FOR AGRICULTURE PRODUCTS
REGULATED UNDER THE AGRICULTURE AGREEMENT -GATT
Detail Value inthousands ofdollars Average
1991-93
1991 1992 1993
Aggregate Measure ofSupport (AMS) 50,348.3 51,323.2 43,699.7 48,457.1
Exemption from import tax(1) 47,538.9 46,227.7 37,956.9 43,907.8
Discount ontheelectricity bill-Agriculture 200.2 E) 177.5 325.9 167.8
Discount ontheelectricity bill-Agroindustrial (2) a/ 1,124.2 1,798.0 974.1
Exemption onincome tax 2,809.4 3,793.8 3,618.8 3,407.3
Gross value ofproduction -Agric. andAgroind. (current prices) 1,845,265.0 1,938,148.0 1,803,884.0 1,862,432.3
Share ofAMS ingross value ofproduction 2.7% 2.6% 2.4% 2.6%
a/ Thediscount rateontheelectricity billtotheindustry isineffect since 1992, soin1991 itdidnotexist.
(1) Refers tothetotal exemption from import taxofalltariff items included inChapters 1through 24oftheimport schedule.
(2) Was estimated based onitsshare onthetotal value ofproduction oftheindustry.
Note: Since total non-specific-product aggregate measure ofsupport islessthan10percent(deminimis ),thissupport isnotsubject toreduction commitments. (Part IV,
Article 6,4(b) -Agriculture Agreement).
Source: Department ofEnergy andTariffs -Hydraulic Resources andElectricity Institute.
Comptroller 'sReport -March 1994, General Comptroller 'sOffice oftheRepublic.
Department ofInformation Systems -Directorate ofRevenues -Ministry oftheTreasury.WT/ACC/PAN/7/Add.1
Page 8DOMESTIC SUPPORT: PANAMA
MEASURES EXEMPT FROM THE REDUCTION COMMITMENT
Type ofmeasure andagencyOutlays (thousand dollars)
Description ofprogramme1991 1992 1993 Average
1991-93
Total 45,503 40,216 44,647 43,455
(A)Administrative structure ofthe
agricultural public sector
Ministry ofAgricultural
Development (MIDA)30,441 23,332 27,683 27,152 Develops thegeneral policies fortheagricultural
Sector -extension assistance tofarmers, pestcontrol
andsanitary supervision tocrops andimports,
conducts research toassist farmers indeveloping
new technologies, guidance ofthesector 's
performance ingeneral.
Agricultural Marketing Institute
(IMA)3,198 2,870 5,800 3,956 Conducts research tocollect supporting data inorder
togive arecommendation totheCommission of
Authorization ofImport Quotas. Provides
information ofinternational prices andgeneral
marketing conditions toother agricultural offices and
tothepublic ingeneral.
Panamanian Institute of
Cooperatives (IPACOO)1,472 2,755 3,213 2,480 Provides assistance tofarmers andagricultural
related management personnel with cooperatives
techniques andinformation.WT/ACC/PAN/7/Add.1
Page 9Type ofmeasure andagencyOutlays (thousand dollars)
Description ofprogramme1991 1992 1993 Average
1991-93
(B)Research andtechnological
transference
Institute ofAgricultural Research of
Panama (IDIAP)4,628 4,718 4,312 4,553 Conducts themajor research onagriculture. Assists
farmers indeveloping improved varieties andmore
effective ways ofcultivating land orgrazing cattle.
Through research, verifies theeffects ofpesticides
andother instruments used intheagricultural
activities inorder toguarantee human health.
Institute ofRenewable Natural
Resources (Inrenare)5,010 5,208 2,640 4,286 Develops thegeneral policies fortheuse,
exploitation andconservation ofrenewable natural
resources.
(C)Support indisaster cases
Agricultural Insurance Institute
(ISA)754 1,333 999 1,029 Provides insurance tocertain crops fornatural
disasters.
Source: National Budget Office -Ministry ofPlanning andEconomic Policy.WT/ACC/PAN/7/Add.1
Page 10DOMESTIC SUPPORT: PANAMA
MEASURES EXEMPT FROM THE REDUCTION COMMITMENT
SPECIAL AND DIFFERENTIAL TREATMENT
Measure andagencyOutlays (thousand dollars)
Description ofprogramme1991 1992 1993 Average
1991-93
(A)Subsidy toinvestment in
agricultural activities
Total interests exempted onloans to
agricultural sector dueto
preferential rates7,480 9,314 11,248 9,347 Through Law No.20of19July 1980, the
Government ofPanama established aprogramme to
provide credit loans tothecultivation phase in
agricultural activities, where such funding wasnot
being provided bytheprivate sector. These loans are
granted atpreferential rates, which aremade possible
through theimposition ofhigher rates tocommercial
loans.
(B)Administrative structure of
financial institutions that
provide credit assistance
Agricultural Development Bank
(BDA)17,199 18,100 40,855 25,385 Develops credit assistance programmes forthe
agricultural sector atpreferential rates.
National Bank ofPanama
Agricultural Section (BNP)33,127 39,694 48,101 40,307 Through itsagricultural section grants credit loans to
theagricultural sector atpreferential rates.
Source: National Budget Office -Ministry ofPlanning andEconomic Policy, andNational Banking Commission.WT/ACC/PAN/7/Add.1
Page 11AGRICULTURAL PRODUCTS
EXPORT COMPETITION: PANAMA
Export Subsidies: Outlays
Name ofsubsidyOutlays inthousands ofdollars
Commitment1991 1992 1993 Average
TaxAllowance Certificate (CAT) 4,951.4 6,679.7 4,954.4 5,528.5 According toLaw 28of20June 1995, theCAT will
bereduced from 20percent to15percent of
National Added Value ofnon-traditional exports, by
31December 2000.
Panama willeliminate theTaxAllowance Certificate
by31December 2002.
Source: General Comptroller 'sOffice.