For Wei Qiang, Ambassador of the People’s Republic of China in Panama , October 21 is a memorable day.

Three years ago on a day like today, “I got up early for the first time in Panama as the ambassador of China, accredited to this beautiful country.”

Four months earlier, in June 2017, Panama established diplomatic relations “with the vehement desire to build a relationship of association, cooperation and win in pursuit of the goal of common development,” he said.

Ambassador Wei Qiang highlighted that a second reason for satisfaction, regarding this day, was the possibility of participating, and opening the Forum organized by Capital Financiero and Connectax, China and the business opportunities in the post-COVID-19 economy .

The event took place this Wednesday, October 21, moderated by Hitler Cigarruista, director of Capital Financiero and with the sponsorship of the Embassy of the People’s Republic of China in the Republic of Panama.

The ambassador said he was convinced that China and Panama “are destined to be natural partners to carry out good business with each other, and generate benefits for both parties, given the extraordinary geographical position of Panama that radiates to the rest of the region.”

When carrying out an evaluation of these three years, he said that “the commercial flow has registered continuous and very strong growth between China and Panama.”

He points out that in terms of volume, and according to statistical data from the United Nations (UN), China was “Panama’s first commercial partner.”

It is worth mentioning, he added, that this upward trend in our bilateral trade has a favorable connotation from the point of view of the trade balance, with the increase in Panamanian exports : meat, aquatic products or copper ore.

In this way, he argued, the traditional direction and sense of this bilateral exchange was reversed, still with a modest margin.

“The Chinese market is dynamic and above all large, broad, and of increasing depth in terms of purchasing power, as the number of middle-class consumers increases,” he explained.

He analyzed that this scenario is further strengthened “by the resolute policy of openness with which the Chinese government is committed, in line with its effort to promote economic globalization in a direction of more equity, inclusion and general benefits, always advocating for in favor of trade liberalization and facilitation ”.

The Ambassador Wei Qiang admitted that the world faces difficult times of economic crisis and unprecedented socio economic circumstances.

He said that China , even though it was the first victim of the pandemic, as the second global economy, and with its resilience capacity, can impact the rest of the world.

He argued that the Chinese reaction to COVID-19 has been based on the philosophy “of the Chinese State to put human life and security in the most sacred place, by adopting the corresponding public policies, whatever the cost in economic terms.”

He said they were the most drastic measures “and never seen in the 70 years of life of the ROC”, with hermetic closures of the borders, the discipline of its citizens and the investment of resources “without sparing that effort in terms of providing human and material resources to save lives ”.

The first semester closed in China with a contraction in its economy of -6.8% , “the first fall in more than 40 years.

“Faced with this bleak picture, the Chinese government was not discouraged; he was optimistic and confident in the post- covid recovery ”, the ambassador said.

In fact, in the second quarter the Chinese economy rebounded to 3.2% and at the end of the third quarter, it reflected a rate of 4.9%, “thus reversing Chinese growth from negative to positive. I think it is the first case among the main economies of the world ”, he explained.

He commented that the food sector always maintained a positive trend, with positive growth even in the first quarter, reflecting 3.5%.

” China’s food reserves look robust and this has significance for the social and economic stability of the world’s most populous nation,” said the ambassador.

He noted that the financial sector remains in a strong position, as well as the so-called emerging sectors, “with the new engines of electronic commerce and high-tech manufacturing .”

Also, “the optimistic business expectations, domestic and foreign, are improving with respect to China.”

In summary, he stressed that the Chinese economy maintains good prospects for continuous development and presents good viability for growth in consumption, under conditions of the new normal.

He announced that “the Chinese government has adopted measures designed to promote exchange and cooperation with the rest of the world, including Latin America and the Caribbean.”

In the case of Panama , he highlighted the opening to quality products such as pineapple, coffee, meat and coiba, “with a good perspective regarding poultry and pork.”

He reiterated that confidence in human resilience cannot be lost as a condition for overcoming the crisis.

Any Lam Chong, former permanent representative in the Office of Commercial Development of Panama in the People’s Republic of China and who participated directly in the process of establishing diplomatic relations between Panama and China, offered, in a personal capacity and based on materials that They are for public consultation, a general look at the current trade agreements between Panama and the People’s Republic of China.

He detailed the current memoranda that have allowed to sponsor trade, investment, exchange information regarding fairs, deepen agricultural cooperation, promote cooperation in Economic and Commercial Zones, as well as Panama as an Approved Tourist Destination.

In the same way, these memoranda have allowed the development of sanitary and phytosanitary measures and requirements for the export or import of products of animal and plant origin.

In relation to the Free Trade Agreement (FTA), the international analyst recalled that on January 16, 2018, the feasibility study began to explore the possibility of negotiating it.

It is on June 12, 2018 when the negotiation of a trade agreement is officially launched, resulting in five rounds of negotiations, the last one held from April 24 to 26, 2019 in Beijing.

He acknowledged that “the negotiating table has new players and has been hit by the pandemic and the priority is now not a trade agreement.”

In my personal opinion, he reflected, the government is focused on seeking mutual cooperation with China on health, agriculture, education and technology issues.

In this regard, it considers that there are business opportunities using other agreements, even if it is not the FTA, in addition to taking advantage of the approval of current health protocols.

He also stressed that Chinese technology platforms open up new business opportunities that must be explored.

The future of exports
Rosmer Jurado, former president of the Panamanian Association of Exporters (Apex), when offering an overview of Panamanian exports during 2019 (See: Panama Exports table , main products ), highlighted that last year bananas were the big winner by leading shipments.

Items such as coffee, with niche products and differentials, have also made it possible to consolidate the country brand.

He recalled that the official statistics do not include re-exports through free zones , even when these platforms are used to generate exports to other markets.

In 2019, a record figure of $ 1.2 billion in exports was achieved, mainly associated with the export of copper concentrate, destined for the Chinese market.

“The export of services has been our strength, but now we are seeing that there is a potential for the export of goods,” he said.

The former Apex president acknowledges that 2020 was forecast as a spectacular year for exports, but the pandemic reversed this scenario.

In the case of exports to China, fishmeal led ( See: Exports to PR China by item ).

However, Panama’s entry into mining, and specifically copper concentrate exports, triggered exports to the Asian nation ( See: Exports to the People’s Republic of China with copper ).

In fact, he stressed, the traditional participation of the United States, the Netherlands and the European Union were in second and third place at the time that Panama incorporates the sale of copper.

In perspective, Jurado points out that in trade with China, food will be in wide demand.

The protocols for beef, fish (cobia and skipjack), pineapple, banana and pork are already approved.

In process are aquatic products (the plants need to be certified) and birds (by signing the protocol).

Similarly, the former president of Apex reiterated an ever-current issue on the agenda of the Panamanian producer and industrial sector: position the country as a regional food hub and thus emulate successful experiences such as those of the logistics, air and banking hub.

This idea is connected with the Special Regime for the Establishment of Agropark Operators and Developers, which aspires to use local and regional inputs, add value and take advantage of the strength of the Panamanian logistics sector as an export platform to different markets.

José González, specialist in financial and investment issues , acknowledged that China’s results for the third quarter show resilience.

“China could grow almost 2% this year. It is the only country that grows in the world ”, he affirmed.

He warned that the global economy will decrease 4.4%

In the case of Latin America, he reasoned, the impact of the crisis shows that it is not just what he did or did not do; it is actually a reflection of preconditions and means bigger challenges ahead.

In the case of Panama, he said that in the relationship with China the issue of agribusiness is key for Panama, as well as its strategic location in the context of the new Silk Road.

The income generated by the digital economy leads to the debate of why and how companies should pay taxes in countries that allow them to profit from their citizens.

Publio De Gracia , director of the General Directorate of Income (DGI) of the Ministry of Economy and Finance (MEF), points out in this regard that he has managed to hold meetings with representatives of platforms such as Google, Amazon and Facebook to listen to them and, in the same way, share the point of view of the Panamanian tax administration , according to which “the important thing is that the digital economy contributes to the collection of our countries as an act of justice .”

In this sense, De Gracia shares the appreciation of Pascal Saint-Amans , director of the Center for Fiscal Policy and Administration of the Organization for Economic Cooperation and Development (OECD), who has just said that the digital rate carries this vision implicitly of equity, in relation to those who carry out their work from a physical headquarters.

The director of the DGI shared his insights during the virtual forum Digital Economy: Tax challenges and opportunities , organized by Connectax, Iesa and Capital Financiero .

The forum, moderated by Reynaldo Díaz , director of Connectax, also featured the intervention of Marcio Ferreira Verdi, executive secretary of the Inter-American Center of Tax Administrations (CIAT); of Gerardo Herrera Martínez, adviser to the office of the DGI; by Raúl Zambrano , Ciat’s technology director and José L. Galíndez , partner at Galíndez, Medrano y Asociados.

De Gracia also made reference to the participation of the body in the discussions of the subcommittee of the National Assembly that debates Bill 299 “that creates the law of tax and labor regulation for companies that operate through digital platforms “, proposed by Deputy Raúl Pineda.

In the explanatory memorandum of the law it is explained that it is the interest to examine what would be the tax regulations to apply in each of the taxes generated by digital platforms.

Also cited in the bill is the report “Fiscal Panorama of Latin America and the Caribbean 2019”, of the Economic Commission for Latin America and the Caribbean (ECLAC), organizations that “suggested to Latin American regions to modify their laws to collect taxes to foreign digital service providers.

Currently, only 3 out of 16 countries apply taxes to digital services: Argentina (21%), Colombia (19%) and Uruguay (18%). Another three are in the process of doing so: Chile. Costa Rica and Paraguay ”.

The director of the DGI indicates that most of the participants in the discussion (users, consumers and platforms) agree that the digital economy must contribute, “the issue is how.”

In this sense, the DGI is looking for alternatives, with an advisory team, because “we must guarantee legal certainty.”

He argued that the tax administration understands that it is necessary to do teaching because at a time of pandemic talking about taxes can “generate noise in citizens”, but reiterates that “it is the duty of an institution such as the DGI to seek that collection from everyone” and this It includes companies that are based in the physical territory and those that without being so also participate in the economy and receive benefits.

Similarly, he clarified that seeking tax justice does not mean wanting to reduce the competitiveness of activities related to the digital economy.

He said that countries must reach a comprehensive and multilateral solution so that tax burdens are balanced and competition between the digital and formal economies is stimulated.

He also pointed out that there is a reality: without income we cannot fulfill our obligations to citizens.

Recent figures provided by the director of the DGI himself, confirm that “the effective accumulated collection of the Tax Revenues accumulated until August 2020, reached the figure of $ 2,332.4 million , showing a decrease of $ 1,087.5 million compared to what was collected in the same period of the year 2019. Direct taxes decreased by $ 442.9 million , while indirect taxes resulted in 644.6 million less than the previous year ”.

It recognizes that it is necessary to address the issue of taxation of digital companies in a responsible manner.

“We know that it is not the magic recipe to achieve the income not obtained in the covid-19 , rather they come to be integrated into the regular economy. We bet on multilateral agreements that help us to collect within this economy, with respect to legal security and international agreements ”.

Gerardo Herrera Martínez, advisor to the DGI office, insisted on the need for how to collect, incentivize and not create a lack of incentives for this sector.

He highlighted that for the year 2019, the digital economy moved $ 199,000 million in Latam and the video game industry was the most important segment.

From this perspective, he considers it important to know the business models and then to know what fiscal policy will be applied (a game is not the same as a sale of products).

You can watch the webinar again here

Digital Economy: Tax Challenges and Opportunities
He reiterated that the tax administration has conversations with important actors in the digital economy , “not to seek approval and yes because a rule that does not have a level of consensus, may result in a null and inappropriate aspect.”

He announced that the DGI is also participating together with Ciat, OECD, International Monetary Fund (IMF), Latin American countries and Europe in the design of tools and norms that allow generating “long-term and sustainable markets.”

Specifically, Ciat is working on the voluntary registration of the different platforms that work in Panama and these are steps to develop a collection model.

In the same way, he clarified that there are activities that transit in the digital economy and are obliged to pay taxes, they do not do so and, in this case, a control task is imposed.

Raúl Zambrano , Ciat’s chief technology officer, acknowledges that payment systems that incorporate cards or generally go through the banking system are mechanisms to achieve tax from the digital economy.

The problem occurs when banking does not mediate or instead of buying a product, “superpowers” are acquired as in the case of games.

On the other hand, it is inclined to simplify processes and establish modifications that allow companies, without the need to be in the territory where the income is generated, to pay taxes.

Many companies that are creating new models and are innovative, he said, will want to comply with the law because it is also a matter of reputation.

José L. Galíndez , partner at Galíndez, Medrano y Asociados, explained that the OECD, with pillars 1 and 2, wanted to give a nuance to the digital economy.

Pillar 1 seeks to provide an answer to how to tax if the company is not in the jurisdiction of the tax administration and Pillar 2 to generate a minimum taxation “and, when it is not taxed, that the parent company of the group can tax the income of that entity”.

It recognizes that the taxes to large technology companies, called the GAFA , will not cover the fiscal deficit of the countries, but it is certain that the tax administrations will be quite active to be able to tax the digital economy.

Marcio Ferreira Verdi, executive secretary of the Inter-American Center of Tax Administrations (CIAT), recalled that Brazil was the first country in the world to receive a statement online.

He said that tax policy is alive and must accompany the progress of societies, although “the best model does not exist.”

He commented that the future is today and it is about the pre-made declaration that the Treasury will send, “because if it has all your data, why ask for the self-declaration? That is the big change ”.

Ferreira Verdi argued that the digital economy is a reality that countries must face.

In the field of digital taxation , he considers that it is not necessary to wait for a rule or an international agreement to start collecting consumption taxes, because each country has that power and it is “a matter of equity with local companies.”