Panama Proposes 7% Tax on Digital Purchases to Update Fiscal Code

Panama's government is seeking to modernize its tax system by applying the ITBMS (Value Added Tax) to digital transactions, a move designed to address a competitive imbalance favoring international online sellers. Edna Gabriela Sáiz, the Vice Minister of Economy, explained that the current digital economy allows foreign providers to operate without paying taxes, disadvantaging local businesses that contribute to Panama's economy through employment and investment.

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The digital economy is when a person buys a product or service through a screen. You have local and international providers selling to you through a screen who do not exist in Panama.

"You have a local provider who pays ITBMS, has employees, generates employment, and has invested in Panama. Then you have international commerce selling to you via screen and not paying ITBMS. You are sending a message to the local investor that they are at a disadvantage," Sáiz stated. She noted that according to CEPAL studies, 67% of online sales in Panama are cross-border.

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You have a local provider who pays ITBMS, has employees, generates employment, and has invested in Panama. Then you have international commerce selling to you via screen and not paying ITBMS. You are sending a message to the local investor that they are at a disadvantage.

The proposed update is projected to generate between $80 and $100 million annually. The collection will involve a combination of local invoicing and partnerships with credit card companies for international services. Sáiz emphasized that the strategy is not to increase taxes but to "organize the house," close legal loopholes, and combat tax evasion by fostering a culture of demanding receipts, similar to the existing fiscal lottery initiative.

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There is a limit of $36,000 per year that does not require an invoice or report. That mini-entrepreneur will continue their venture and it is that person's responsibility to report and formalize.

For small entrepreneurs selling online, the ministry has established a protection framework. Businesses earning up to $36,000 annually will not require invoices or reporting, allowing them to continue their ventures. However, those exceeding this threshold must issue electronic invoices. This measure is also intended to function as a substitute revenue source, compensating for the exemption of the 2% ITBMI on housing valued up to 120,000 balboas, as mandated by Article 276 of the Constitution, which requires a replacement tax when one is deactivated.

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It is not an increase in the rate. It is a way to update Panama's economy to international levels without you and I paying more taxes on other operations.