Panama’s response to tax-related matters during COVID-19

It is common knowledge that, as the COVID-19 pandemic started, the whole world came to a standstill.  The pandemic globally progressed, carrying with it a sanitary and economic crisis that impacted individuals, private entities and public institutions.  In particular, the economic crisis caused many individuals and entities unable to meet financial, economic and tax -related obligations.

At the beginning of the COVID-19 pandemic, the Panamanian government, through the tax authority, issued several measures to provide cash-flow to taxpayers.  It is relevant to note that these measures were aligned with the proposed measures to support taxpayers determined by the OECD in document ‘Tax Administration Responses to COVID-19: Measures Taken to Support Taxpayers’. 

Between 2020 and 2021, the Panamanian tax authority introduced diverse measures, as follows: 

• Extension of filing and tax payment deadline;
• Deferral of tax payments;
• Exonerations;
• Suspension of penalties and interest;
• Debt payment plans;
• Quicker refunds to taxpayers; and
• Digitalisation of procedures.  

Most of the measures were applicable regarding direct and indirect national taxes, which included income tax, value-added tax, among others.

In light of the debt payment plan and suspension of penalties and interest measures, the Panamanian government issued a tax amnesty under which is granted an extension on the deadline to pay unpaid taxes administered by the tax authorities without the imposition of surcharge and interest. 

Since then, several amendments have been made to the regulation that established the tax amnesty in order to grant taxpayers with interesting and productive benefits that would encourage them to pay their unpaid taxes, which in turn would increase tax collection for the Panamanian tax administration.

Another measure that has been promptly implemented due to the COVID-19 pandemic and economic crisis that was experienced by Panamanian taxpayers is the procedure of tax refunds.  Tax refund procedures are a priority for the tax administration, as the institution has applied the required actions to accelerate the tax refunds processes in order to provide taxpayers with cash-flow or tax credits that could be used against any other tax obligation held before the Tax Administration of Panama.

In accordance with information shared through the tax authority’s website; in 2020, the tax refund department attended to a total of 6,625 cases for tax refunds and, to date, the amounts of the files processed amount to approximately $46 million.

In 2021, the Cabinet Council of Panama authorised the Ministry of Economy and Finances to sign and file before the National Assembly a draft bill to digitally transform the tax authority within the next five years, which would allow most of the procedures to be carried out online and thus, clearly control the activities related to tax collection. 

Currently, the tax administration is in a transformation process, under which it is included the implementation process of voluntary use of electronic invoices.  

In principle, the use of electronic invoices was established for taxpayers that are obliged by law to have fiscal equipment, subjecting them to mandatory migrate to this system.  However, after amendments were introduced to the electronic invoicing system’s regulation, interested taxpayers would be able to voluntarily migrate towards electronic invoicing, which represent an important step in terms of supervision and administration of taxes for the Tax Administration in Panama. 

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