Free Zone Shortfalls

Jan 1, 2005

Panama's free trade zone is a success, but it needs to invest more to improve infrastructure and security. Nobody is sure where the money will come from.

Companies in the free zone say the government must not tax re-exports.
Panama has hinted that it might start taxing re-exports from the Colón Free Zone (CFZ) to plug a growing fiscal gap. Companies in the zone say that would spell disaster.

The CFZ, created in 1948, is the largest free trade zone in the Americas and second in the world after Hong Kong. More than 2,000 companies and 25 banks operate within Panama's trade zone, which reported $12.2 billion in sales in 2003. Through November 2004, sales were up 18.5%. But government fiscal reform plans threaten to dampen the outlook for 2005, says CFZ General Manager Nilda Quijano.

 Companies operating in the zone, which is based in Colón, Panama's second city, may only import products for processing and re-export. Vendors must re-export 60% of their goods - currently untaxed - and employ at least five...

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