Glitches in the system

Panama moves to electronic invoicing – data protection and client confidentiality concerns persist.

Panama, Central America’s most prosperous economy, is seeking to amend a law in force since 1976 to make electronic invoicing mandatory. The so-called “law 256” mandates that taxpayers issue their invoices through the “Electronic Invoicing System of Panama” (“SiFEP”) or through an authorised fiscal printer – a rather more antiquated and time-consuming alternative. Beyond the technical minutiae, it is hoped that SiFEP could function as an effective deterrent to tax evasion, a serious problem in the country.

Panamanians, and the industry, are usually receptive to innovation and the streamlining of business processes. They are proud of their country’s competitive edge in the region and keen to keep that lead. Why therefore has this measure attracted so much criticism? A senior member of the Bar Association explained, “We oppose it because the alleged modernisation overlaps with an arbitrariness that leads to other violations of citizen rights, including crucially around confidentiality. The change in the billing model is an imposition that opens the window to undue interference by the State.”

“The change in the billing model is an imposition that opens the window to undue interference by the State.”

Senior member, Bar Association, Panama

The Bar Association is not alone in its unease. Unions and associations expressing concerns over issues ranging from tax obligations to client confidentiality include the Professional Associations of Panama and the National Medical Commission.

Client confidentiality, especially data stored by law firms, has become a real bone of contention. To a degree, this is an understandable concern in Panama where the leaking of thousands of confidential client documents from law firm Mossack Fonseca severely diminished the country’s reputation as an offshore tax haven with the highest standards of confidentiality for some of the worlds wealthiest, if morally dubious, figures.

The risk with electronic invoicing, they say, is that an instant disclosure could occur. They are also concerned about penalties that could arise and which could ultimately lead to the closure of a business. This kind of uncertainty is not good for business.

Panama is not the first in the region to implement such a system – similar models have already been established in Mexico and Guatemala and there are those in Panama who see criticism of the system as unjustified and overly-cautious from sectors who are too used to working in secrecy.

“This is a legitimate and much-needed government initiative that seeks to improve collection in a country where tax evasion is in the millions.”

Professor of economics, University of Panama

A professor of economics at the University of Panama said, “This is a legitimate and much-needed government initiative that seeks to improve collection in a country where tax evasion is in the millions. It is a national scandal that Panama cannot afford. The OECD and the FATF have Panama on grey lists, among other things, due to the issue of tax evasion. The government is therefore perfectly entitled to table legislation that seeks to bring the country up to date.”

It is Panama’s Supreme Court that will ultimately rule on a matter that has reflected surprisingly sharp divisions.

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