Today I&ll be speaking about 3 main topics that are quite in the spotlight today. The Personal Income Tax has been implemented in the country after years of lobbing in the congress, today it’s a reality. Second topic, the Bvpasa continues to grow in the region conquering new markets and allying with new partners on a win-win basis. Last but not least, you&ll see that Paraguay holds a very healthy economy knowing that it only has a 10,7% Sovereign Debt level vs its GDP, consider that the US has surpassed its Sovereign Debt level contrasted with its GDP

TAX REFORM - THE PIT TAKES OFF

A long desired dream has been fulfilled for all of those that have always wanted Paraguay to keep growing in the world scenario. The Personal Income Tax a.k.a. PIT has been implemented since last august 1st creating a real boost on the formalization of the economy , not just being another bill that all us taxpayers must absorbed but forcing all stores and shops to formalize its books.

Well, to explain the reaches of this particular Law -# 4673- let&s first disclose the minimum wage per month here in Paraguay which is Gs 1,658,232. This gives us with the exchange rate 1/4400 U$S 376 per month ergo, U$S 4,512 a year. The minimum wage per year in Paraguay is slightly lower than IMF&s 2011 report for Paraguay&s GPD Per capita which is U$S 5,444.

Now, this law takes into account the U$S 376 minimum wage benchmark to establish who will need to pay the PIT the Paraguayan IRS –SET Secretaria de Estado de Tributacion, the State Tax Bureau .- Whoever has reached an income of 120 minimum wages -U$S 45,120- will need to pay the PIT having 30 days to register before the State Tax Bureau (SET)once surpassing that limit.

Like most PIT regulations worldwide, the PIT is only paid if the earnings surpass the expenditures, otherwise the person will only need to present an Affidavit stating its incomes and expenditures. If us taxpayers hold onto education, health, housing invoices and receipts , they will be used to deduct all possible payments that must be done to the SET… so, this is the why and how the formalization of economy will take place, everybody will be asking the invoice of any goods of services that will be purchased or consumed.

The PIT rate is set on a 10% basis if the 120 minimum wage benchmark is surpassed. For people who do not have residency in Paraguay and happened to give a service in the country e.g. Paul McCartney gives a concert in a Stadium, then he will have to pay a 20% PIT over 50% of his income, so… Sir McCartney receives U$S 1,000,000 for playing a concert, the will have to give U$S 100,000 to the SET.

The benchmark will decrease 12 minimum wages on a year after year basis until reaching by 2019 36 minimum wages, today set in U$S 13,536. So, for the first year of implementation, like mentioned above , the PIT will have a 120 minimum wage benchmark, year 2/2013 108 MW (U$S 40,608) , year 3/2014 96MW (U$S36,096); year 4/2016 84MW (U$S31,584) ; year 5/2017 72MW (U$S 27,072) ; year 6/2018 60MW (U$S 22,560); year 7/2018 48MW (U$S 18,048) and year 8/2019 36MW (U$S 13,536).



The Asuncion Stock Exchange goins the FIAB

The Asuncion Stock Exchange (Bvpasa) has become the latest member of the Latin American Stock Exchange Federation (FIAB in spanish) Last month the President of the Asuncion Stock Exchange Bvpasa, Rodrigo Callizo (one of my mentors) led a committee of top representatives of this institution to the Latin American Stock Exchange Federation FIAB Summit in Cartagena, Colombia. The Latin American Stock Exchange Federation is a recognized institution worldwide that relies on 4 simple pillars which are:


A) To promote collaboration among its members, to promote the development and improvement of their respective markets and financial instruments.

B) To cooperate with national and international institutions with competence in legislative, regulatory or other developments in financial markets and securities field , in order to standardize listing regulations, distribution and registration of securities and financial instruments, securities contracts, securities issuers, intermediaries, securities markets, depository institutions and custodians, as well as with regard to tax systems and any other aspect considered relevant to the development of their markets.

C) Promote the integration of Federation Stock Markets , promote the interaction of the entities involved in such markets.

D) Encourage policies and procedures to ensure solvency, adequacy, legitimacy and transparent information to all those who invest their savings throughout Stock Markets and Financial Instruments.

At FIAB&s XXXIX Assembly, the Asuncion Stock Exchange was accepted as a full member. The current members are (in alphabetical order)1 Buenos Aires Stock Exchange,2 Bolivian Stock Exchange, 3 BM & FBOVESPA (Brazil), 4 Caracas Stock Exchange, 5 Dominican Republic Stock Exchange, 6 Colombia Stock Exchange, 7 National Stock Exchange (Costa Rica),

8 Rosario Stock Exchange, 9 Santiago Stock Exchange, 10 El Salvador Stock Exchange, 11 Euronext Lisbon, 12 Guayaquil Stock Exchange, 13 Quito Stock Exchange, 14 Spanish Stock Exchanges, 15 Lima Stock Exchange, 16 Mexican Stock Exchange, 17 Montevideo Stock Exchange , 18 Panama Stock Exchange and last but not least (drum rolls) the Asuncion Stock Exchange Bvpasa.

The Bvpasa is having a huge growth this year (see Paraguay Today&s first presentation for statistics) , let&s see what trading impact will this new alliance have in terms of volume in 2013 and the coming years.

This new open platform that will indeed give Paraguayan Companies the chance to expand their investor markets with other Stock Exchanges in Brazil, Argentina, Colombia, Peru, Uruguay, Mexico, Central America ,etc. “This opportunity to greatly strengthen the possibility of trading securities abroad and attract foreign investment, which at one time was difficult due to the small trading volume”, explained the head of the Bvpasa, Rodrigo Callizo.

This alliance had its inception last March, when a FIAB official committee came to the country to know the conditions in which the Stock Exchange operates with local securities. In that occasion, the FIAB President , Joan Hortala stated that “the Asunción Stock Exchange exhibited a very efficient operational infrastructure and that the expanding possibilities are very important”... in other words, it has huge potential. Let&s give a standing ovation to the Bvpasa on this new achievement!

Paraguay among the lowest in sovereign debt worldwide

Let&s start with this quote: the IMF recommends emerging economies to reach up to a 30% public debt over its GDP. Paraguay holds only a 10,7% public debt over its GDP, that&s 19,3% below the recommended average.

To give a short overview on how other economies manage their public debt let&s start with the US and Europe…The US and most of the European Union public debt surpasses their GDP, so their leverage is quite high understanding that for each U$S 1 they produce, they owe more than that dollar.

In our region, the countries that manage important Public Debt vs. GDP are Brazil with 65,1%, Guyana 63,4%, Venezuela 51,6%, Uruguay 49%. The average of these 4 countries is 57,2% , that’s 46,5% over Paraguay&s public debt level over its GDP. In other words for every U$S 1 Paraguay produces , it owes 11…quite healthy in economic measuring considering that the country can issue 19% more of public debt and STILL be under the IMF&s recommended parameters (under 30%) So Paraguay has a 19,3% threshold where the country can obtain fresh funds from national and international markets offering rates that are quite attractive to investors. Now, where is the twist? It&s WHERE the funds are allocated, we have a deep need for infrastructure in this country (Education, Health, Public Works, etc) so the Government should set eyes on that first and under no circumstances place the funds on expenses.

It&s good to know that the Treasury Secretary of Paraguay, Phd Manuel Ferreira Brusquetti (one of my teachers at the MBA I must say) has taken forth a very challenging Public Debt Issuing Program to be offered to very important Investment Funds worldwide as well as to other investors that wish to have non risk assets in its portfolio with the plus that the rates will also satisfy their needs. The Paraguayan Treasury Bonds are called BOTES, short for Bonos del Tesoro.

The Issuing Program that is being taken forth will be aprox. U$S 550M worth, where the initial idea (not official yet) is to do the following breakdown: The Ministry of Public Works will be receiving U$S 240, The National Cement Industry U$S 40M, the National Electricity Administration U$S 200 and Treasury and Education the remaining U$S 20M leaving U$S 50M for other areas.

The best of luck to the Treasury Secretary&s team on the international BOTES allocation which will not only give Paraguay fresh funding for infrastructure but present the country as a smart investment alternative for investors worldwide.