In 2021, Nicaragua had the largest increase in tax collections in the last four years, revealed the Ministry of Finance and Public Credit (MHCP) in its 2021 budget execution report, published on April 8, 2022.
As detailed, the State managed to collect 94,056.1 million córdobas, which represents 26.5% more than in 2020, and 47% more than in 2018, when the country suffered an economic contraction due to the socio-political crisis due to government repression against civic protests, which left more than 300 dead, hundreds of exiles and political prisoners.
“The recovery of the central government’s income has been observed since the first quarter of 2021, managing to exceed the 2018-2020 collection levels from the first months,” explains the Treasury.
The upward trend was observed from the first quarter of 2021, when the income from the 2020 annual IR declaration was collected, they explain. In the second quarter, this trend continued, exceeding by 30.1% the collection levels obtained a year ago, when the country suffered the first wave of the covid-19 pandemic, minimized by the Ortega government.
The pandemic hit the country with a second wave in 2021, even stronger than the first —leaving a cumulative of 14,815 deaths attributable to covid-19 in two years— and its impact was reflected in the tax collections of the third quarter, admits the Treasury.
“A small slowdown in revenues is observed related to the resurgence of coronavirus cases experienced during September and October,” they acknowledge and explain that after the decrease in the covid-19 curve, collections resumed “the growth path associated with growth of economic activity in the last quarter of the year.
Growth in VAT collections
According to the MHCP, in 2021 there were improvements in the country’s economic activity and this produced a greater consumption dynamic, which favored the collection of indirect taxes, mainly in the collection of Value Added Tax (VAT).
For this type of collection, the country obtained 32,998.0 million córdobas in 2021, which represents 32% more than in 2020. As detailed, the VAT collections for internal transactions, which add up to 10,237.8 million córdobas, were obtained mainly from taxed sales. Meanwhile, 22,760.2 million córdobas were obtained from the tax on imports, 35.2% more than the previous year.
“The higher collection of VAT on imports was due (…) mainly to non-durable consumer goods, raw materials and intermediate products for industry, transport equipment and construction materials,” explains the MHCP.
Income tax also increased
The Treasury details that IR collections reached 40,753.1 million córdobas, exceeding by 8,283.4 million córdobas collected during 2020. The initial goal set in the budget was even exceeded by 19.3%.
“This result in the collection of IR is explained by the recovery of the economic activity experienced during 2021, which led to an improvement in the sales levels of the economic sectors of 22.7%, highlighting the sectors of commerce, manufacturing, construction, mining , agricultural, as well as the recovery of employment after the negative effects of the pandemic during 2020”, they point out.
Although the result at the end of the year was positive in IR collections, it was not so at the beginning. As of February 2021, the trend was negative, but in March the economy projected greater dynamism and continued to do so during the following months.
The MHCP highlights that the collection of labor income grew during 2021 due to the 6.8% increase in the recovery of formal employment compared to 2020. Mainly in the last quarter of the year, when there was an increase in the number of workers formal.
16.9% more ISC was collected
The highest collection of the Selective Consumption Tax (ISC), which in 2021 had a growth of 16.9% compared to the previous year, was due to fuel consumption. In this area, 6,845.9 million córdobas were collected, that is, 41.7% of the total of 16,412.3 million córdobas.
Regarding the collection of the ISC due to imports, 5794.4 million cordobas were collected, from the importation of non-alcoholic beverages, electronic devices, vehicles and parts, explains the Treasury.
The collection from internal sales had an increase of 10.9% compared to 2020, which translates into 3772.0 million córdobas. This increase benefited from the sale of domestically manufactured goods (alcoholic beverages and sugary drinks).
“This behavior reflects the dynamism of the manufacturing industry in 2021, specifically of the fiscal industry and its contribution to the growth of collection in 2021”, they point out.
Collection for customs services rose 31.5%
The budget execution report also indicates that the collections received by the General Directorate of Customs Services collected 32,122.7 million córdobas, which represents an increase of 31.5% compared to 2020. This trend is explained by the increase in imports “of goods of capital for industry, non-durable consumer goods and raw materials and intermediate goods for industry”.
The collections of the General Directorate of the Treasury and the General Directorate of Revenue also rose 25.7% and 24.2%, respectively, with which both institutions totaled 17,130.3 million córdobas in 2021.
