As we have mentioned in previous articles, the constitution establishes certain principles in tax matters. We bring up this topic from the videos about the neutrality of VAT because it is important to see how the constitution aligns with the regulation we will analyze later.
In Guatemala, art. 239 of the Constitution orders that it be the Congress that establishes taxes, as well as the collection bases. Collection bases should be understood as all those elements that configure the tax as such.
Art. 239: It is the exclusive prerogative of the Congress of the Republic to decree ordinary and extraordinary taxes, fees, and special contributions, according to the needs of the State and under tax equity and justice, as well as to determine the collection bases, especially the following:
- The event generating the tax relationship.
- The taxpayer and joint liability.
- The taxable base and the tax rate.
- Tax offenses and penalties.
Provisions hierarchically inferior to the law that contradict or distort the legal norms regulating the tax collection bases are ipso jure null and void. Regulatory provisions may not modify these bases and shall be limited to regulating the administrative collection of the tax and establishing procedures that facilitate its collection.
Taxes must respect the three constitutional principles contained in the first paragraph of art. 239. Equity and justice must be present in each legislative configuration, but, in turn, when we read the articles of tax regulation.Additionally, art. 243 of the constitution indicates that tax equity and justice imply that each tax and the system be designed respecting the principle of ability to pay.
Art. 243: Principle of ability to pay. The tax system must be fair and equitable. For this purpose, tax laws shall be structured under the principle of ability to pay.Confiscatory taxes and internal double or multiple taxation are prohibited. The latter occurs when the same taxable event attributable to the same taxpayer is taxed two or more times by one or more entities with taxing power and for the same event or imposition period.
Cases of double or multiple taxation, upon the promulgation of this constitution, must be progressively eliminated, so as not to harm the treasury.
In the case of VAT, to be specific, the ability to pay manifests as “neutrality.” This implies that the taxpayer (who buys and sells goods and services) should not bear the economic impact of the tax. The taxed wealth is that of the final consumer.
“When VAT is not neutral, it ceases to be VAT”, as César García Novoa pointed out in one of his conferences.
This is why the interpretation, from the perspective of constitutional principles, is so important. Moreover, art. 4 of the Tax Code obliges tax norms to be applied with a view to constitutional principles.
In this way, we will continue exploring VAT and its neutrality with the clearest path of constitutional texts and their implications in interpretation.