VAT in the Gulf Cooperation Council
Edited by Ehtisham Ahmad and Abdulrazak Al Faris
Chapter 6: The VAT in Common Markets: Lessons from Central America
Carlos Silvani Regional integration advances through the elimination of tax barriers and the formation of common markets where a common external tariff is applied. The American continent has not been an exception. ALALC (Latin American Free Trade Association)1 was created in 1960 and replaced in 1980 by ALADI (Latin American Association for Integration),2 eventually resulting in MERCOSUR (Southern Cone Common Market)3 and CAN (Andean Community of Nations).4 In 1989, a free trade agreement was signed between Canada and the US, which Mexico joined in 1991, forming the North American Free Trade Agreement (NAFTA). In the Central American (CA) countries, the first step towards integration was the General Economic Integration Treaty5 in Managua in 1960. This established the bases for the Central American Common Market.6 Free trade process continued, particularly during the 1980s, with the reduction of export taxes. Today, there are only import taxes.7 The Central American Common Market started with the Guatemalan Protocol8 signed in 1993. In 2000, Guatemala and El Salvador signed an agreement, which Nicaragua, Honduras, and Costa Rica joined later. In 2002, these five countries approved the General Framework for Central American Customs Union Negotiation,9 which currently regulates integration. The region is shown in Figure 6.1 and its macroeconomic characteristics are described in Table 6.1. As part of the integration process in June 2006, the Ministers of Finance Council10 signed an agreement on harmonization of domestic taxes.11 In addition to tax policy matters, the Ministers of Finance Council also discusses measures...
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