Honduras Needs to Take Care of Business

Legislators in Honduras must enact the reforms so the private sector can grow, starting with small businesses. (<em><a href="http://www.elheraldo.hn/honduras/apertura/328188-364/congreso-vuelve-a-pujar-por-las-ciudades-modelos-en-honduras" target="_blank">El Heraldo</a></em>)
Honduran legislators must enact the reforms so the private sector can grow, starting with small businesses. (El Heraldo)

EspañolEver since I entered the Honduran job market, I have understood that the best way to pull this Central American nation out of her mess is to strengthen the private sector. After all, the private sector employs more economically active Hondurans than the public sector, which it funds through taxes.

In 2010, I founded my first business with the hopes of making a tiny contribution. Before we began operations, I spent months thinking how I could help other small firms grow by providing them with graphic and web-design services.

Subscribe free to our daily newsletter

I hadn’t fully anticipated, however, the crippling regulatory hurdles that come with starting a business in Honduras, and the heavy tax burden that would eventually drive me to close in 2012.

A Block on New Businesses

The first of many steps was to draw up a certificate of incorporation and meet the requirement of a depósito a la vista (demand deposit). This means acquiring a certificate of deposit with a predetermined minimum capital.

In this case it was 5,000 Honduran lempiras, roughly US$230, an amount equivalent to anywhere from 65 to 133 percent of the monthly minimum wage in Honduras, depending on the industry.

I could not use this demand deposit, which was frozen while I went through all the paperwork to set up my business. Back in 2010, the 13-step process took at least 14 business days to complete. Today, there are 12 steps, but it still takes the same 14 business days in the capital Tegucigalpa.

It’s shorter than in similar developing countries — the average in Latin America and the Caribbean is 30.1 days — but this still meant my seed money was out of reach for approximately three weeks, a harsh obstacle for start-ups on a shoestring budget in a poor nation.

Aren’t We Paying for This Already?

After surviving for two years, I made the difficult decision to close my shop. This came after banks began retaining percentages of each business-account withdrawal, to comply with the temporary security tax rolled out during the Porfirio Lobo administration (2010-2014).

This felt like the government’s version of the “war tax,” an extortion racket that gangs in Honduras impose on businesses operating in their area. Mine was a service-based company that didn’t require a storefront, so fortunately I wasn’t exposed to direct pressure from the maras. I can’t even begin to imagine what it must be like for small-business owners who have to deal with both taxes. How can they stay afloat?

Isn’t it already part of the government’s job to protect us (not that they do)? Aren’t we already paying for this service with the sales tax, income tax, and many others that support our bloated state?

No Incentives for Entrepreneurs

In light of the current situation in Honduras, with corruption scandals ensuing, frustration abounds. The weakened economy has had an effect not only on the businesses themselves: problems trickle down to the general population with rises in product prices and massive unemployment.

Tech entrepreneur Eddy Ordoñez expressed frustration at the limit on growth his company has had in the past four years during an airing of Treinta Treinta on July 26. Ordoñez would like the government to “set eyes on the problems [Hondurans] are really facing.” He compares the government’s attitude about taxes and the private sector with a piñata they can just strike to get to the treats inside.

Eléutera Foundation CEO, Guillermo Peña, thinks “the Honduran government should exit the tax-collection business and focus on economic growth.” The liberal policy institute is promoting the abolition of the 1.5 percent tax on gross profits that exceed 10 million Honduran lempiras (US$450,000).

Marlon Tábora, former president of the Central Bank of Honduras, believes “there is no way for the country to rise above its problems without support from the private sector,” and he has come out in favor of “fiscal discipline … to promote growth and develop the country.” Furthermore, he has expressed support for tax reforms proposed by the private sector since early last year.

Meanwhile, the Honduran tax agency (DEI) is hellbent on preying on small businesses. It seems that the head of the DEI is preoccupied with meeting tax-collection objectives and doesn’t realize she is doing more harm than good.

Rather than burden the private sector with more regulations and more taxes, why not strengthen our economy by unleashing our entrepreneurial potential?

Economics is not my forte, but I have seen and experienced why businesses struggle here, and we have experts who can turn the country around if given the chance. It’s a matter of getting their ideas out in the open, getting more people to understand that how things have always been is not good enough, and working toward effective change in legislation.

Subscribe free to our daily newsletter
Sign up here to get the latest news, updates and special reports delivered directly to your inbox.
You can unsubscribe at any time