VZCZCXYZ0004
RR RUEHWEB
DE RUEHMU #0900 1981603
ZNR UUUUU ZZH
R 161603Z JUL 08 ZDK
FM AMEMBASSY MANAGUA
TO RUEHC/SECSTATE WASHDC 2899
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
UNCLAS MANAGUA 000900
SIPDIS
SENSITIVE
STATE PASS USTR
E.O. 12958: N/A
TAGS: ETRD ECON PGOV NU
SUBJECT: NICARAGUAN CUSTOMS TAXES FTZ TRASH
1. (SBU) Summary: Apparel and furniture manufacturers complain that
in March 2008, Nicaraguan Customs began to tax fabric scraps and
trimmings disposed of in local landfills as "exports," levied upon
an arbitrary value based on weight. The government has temporarily
backed off this new trash tax after manufacturers complained
directly to President Ortega. End summary.
2. (SBU) Apparel and furniture manufacturers recently complained to
Econoff that in March 2008, Nicaraguan Customs (DGA) began to tax
fabric scraps and trimmings disposed of in local landfills as
"exports." One furniture manufacturer, Justin Westbrook, reports
that DGA had attempted to impose a charge of $0.50 per kilogram.
Rather than pay what would amount to $9,000 in taxes per month on
his trash, Westbrook began to store his waste in an unused part of
his manufacturing facility that he had planned to bring into
operation this year. Westbrook said the fee would put his company,
Mubletex, out of business.
3. (SBU) Scott Vaughn, President of the Nicaraguan Textile and
Apparel Manufacturers Association (ANITEC), argued that the waste
produced by his company and others has no commercial or transaction
value and should therefore not be subject to taxation when removed
from the Free Trade Zones (FTZs) in which they operate. His
company, Rocedes Apparel, faces waste disposal fees of $2,000 a
month. He reports that the local DGA officials plan to assess a
$0.10 per kilogram tax on his trash. Vaughn and Westbrook complain
that, without a transaction value on which to base customs duties or
VAT, DGA authorities have assigned arbitrary tax rates based on
weight. They report that these rates vary widely, depending on the
manufacturer.
4. (SBU) Edmundo Guerrero, the DGA representative for the FTZ where
Westbrook operates, argues that Muebletex' waste does indeed have
value as it is often removed from landfills by scavengers who later
use the scraps and trimmings to stuff mattresses and weave rugs. In
a June 2008 meeting between ANITEC and DGA leadership, DGA Deputy
Director Wilfredo Altamirano argued that Technical Circular 100/2006
authorizes them to collect duties and VAT on waste. Econoff
received a similar explanation from DGA staff in response to June
2008 letter to DGA Director Eddy Medrano.
5. (SBU) At the June meeting between ANITEC and DGA, ANITEC
Executive Director Dean Garcia countered that the circular requires
manufacturers to submit monthly reports to DGA detailing the type
and quantity of fabric disposed of and the mode of disposal, but is
silent on the mode of disposal and the collection of taxes and fees.
Free Trade Zone Commission Technical Secretary Alvaro Baltodano and
ProNicarauga Executive Director Javier Chamorro have expressed
sympathy with ANITEC's position.
6. (SBU) In a follow-up conversation with Econoff, Scott Vaughn
reported that DGA has temporarily backed off on collecting taxes on
trash after a group of FTZ investors brought the issue to the
attention of President Ortega in late June. However, Vaughn
believes formal repeal of the tax is unlikely, given the
government's constant search for creative ways to maintain leverage
over FTZ companies.
TRIVELLI