ABSTRACT
This chapter evaluates the pre-reform system, lays out the recommendations of the Guatemalan Fiscal Project and the reform program adopted by the government, and projects the impact of the reforms. For Guatemalan residents, the main importance of these rules was that income from investments abroad was legally exempt from tax in Guatemala. Because such income is often exempt in the source country, a zero rate of tax could be legally achieved by Guatemalan residents by investing abroad. In the case of a citizen of a country with worldwide taxation and a foreign tax credit, the exemption generally redounded to the benefit of the treasury of the country in which the individual paid income tax. The individual income tax code did not provide for any indexation of brackets, exemptions, deductions, or other tax relief. Most interest income was exempt from individual income tax. The government consequently lost the revenue on both the individual income tax and the business income tax.
