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Panama aims for a fairer tax system. The new administration in Panama is already working on a corporate flat tax with the goal of cutting out unfair deductions and reducing the overall tax rate. Now the Martinelli administration is looking at taxes on individuals with the populist notion of making the rich pay their fair share of the tax burden. Will these initiatives affect Panama investment and real estate?

To the extent that changes in the tax code reward productive work and good planning they are good for business and society in general. We can hope that the Martinelli tax code changes will benefit investment in Panama and real estate development and purchases in Panama.

An improvement of the tax code is like removing a middleman. If doing so reduces the cost of construction, the cost of paperwork, as well as the cost of taxes it will help Panama investment, business, and real estate.

The best argument for simplification of a tax code with an ideal flat tax is that people will arrange their affairs in such a way as to be more efficient. When the tax code is the governing factor businesses and individuals arrange their affairs based on an arbitrary law and not efficiency.

As Panama business does better so will investment in commercial real estate in Panama and so will the tourism industry, banking, construction, and the insurance sector. A well done revamping of the tax laws may help Panama do even better after the recession than anticipated.

When the new administration takes power on July 1 Alberto Vallarino will be the Economy and Finance Minister. Mr. Vallarino reflects the views of the new president, Martinelli, in that he wants to increase revenues through taxation of the higher income groups, which he believes have not been sharing the burden. The goal of the Economy and Finance Minister is to double input into the country’s treasury over the next five years.

In general the new administration is not going to retire debt so much as promote mega projects, which will improve the life of the average Panamanian and produce jobs. One of these is the proposal to build a subway system in Panama City.

For the foreign resident in Panama there will be no tax increase because if you do not earn money in Panama you do not pay taxes in Panama. This rule also applies to offshore corporations.

For those who wish to invest in commercial real estate in Panama a more rational and more efficient system of taxation will be a boon. As Panama business, especially small business prospers so will those who own buildings and lease to business clients.

The high end of the housing market will come back when the North Americans have more cash and credit in the next year or so. The middle and lower ranges have not been hurt by the recession elsewhere as there is no recession in Panama. However, as Panama’s middle class prospers so will Panama residential real estate investment in the middle range.