For Lugo, Paraguay income tax is a dream deferred

ASUNCION, Paraguay

Paraguay is one of the few countries in the world with no income tax -- and it looks like that won't change anytime soon.

The country's senate on Thursday delayed the imposition of an income tax until 2013 -- denying President Fernando Lugo the revenues he wants to fight crime and poverty.

The vote prompted strong reactions from Lugo's ministers, who said that without a tax law requiring people to declare their income, Paraguay will remain a haven for drug traffickers, money launderers and black marketeers.

Sen. Alfredo Jaeggli pushed for the delay, saying Lugo "isn't trustworthy, doesn't fight corruption, and has shown that he has no intention of catching the guerrillas and, worse still, isn't saying what he would do with the revenue collected from the income tax."

But Economy Minister Dionisio Borda said it will cost $3 million this month simply to move the troops needed to hunt down leftist guerrillas and drug traffickers in Paraguay's northern jungles. The progressive income tax on earners of more than $35,000 would generate more than $37 million a year, he said.

Borda said the tax "is necessary because it will make transparent the wealth of businesses and people, putting an end to the use of frontmen and proxies, tax evaders, political godfathers and black marketeers."

Paraguay is the only country in Latin America without a personal income tax. Its revenue comes entirely from businesses, whose tax burden has been reduced from 30 percent to 10 percent -- the hemisphere's lowest tax rate, according to the United Nations' economic agency.