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Law Of Liability Tax For The Sustainability Of The Finance Public And The Development Social.

Original Language Title: LEY DE RESPONSABILIDAD FISCAL PARA LA SOSTENIBILIDAD DE LAS FINANZAS PÚBLICAS Y EL DESARROLLO SOCIAL.

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LEGISLATIVE ASSEMBLY-REPUBLIC OF EL SALVADOR ____________________________________________________________________

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DECREE NO 533

THE LEGISLATIVE ASSEMBLY OF THE REPUBLIC OF EL SALVADOR,

CONSIDERING:

I.-That in accordance with our Constitution, the human person is the origin and the end of the activity of the State, which is organized for the attainment of justice, legal certainty and the common good; purposes for which It needs to be equipped with essential and vital tools that are conducive to and guarantee the exercise of adequate fiscal policy and discipline, especially for health, education, security and infrastructure financing.

II.-Article 101 of the Constitution provides that the economic order must respond essentially principles of social justice, which tend to assure all the inhabitants of the country a dignified existence of the human being, a mandate whose fulfilment requires sound and sustainable public finances, which allow to ensure these conditions for the current and future generations.

III.-Article 226 of the Constitution provides that the The Executive Body shall be particularly obliged to maintain the balance of the budget, to the extent that it is compatible with the fulfilment of the aims of the State, and should therefore be oriented to balance, and be administered with criteria of prudence,

IV.-That fiscal policy, becomes a tool to generate economic and social development, and that in this sense, the country must have a guarantee of fiscal stability and seek a financial sustainable public, which implies a reasonable exercise of public expenditure and a progressive strengthening of public revenues.

V.-That transparency and access to public information are necessary conditions to ensure an efficient use of State resources for the benefit of the population, which in turn ensure effective citizen participation, which helps to monitor the implementation of the General State Budget from a social and economic perspective.

BY TANTO,

in use of its constitutional powers and President of the Republic of the Republic through the Minister of Finance and with the support of the Deputies Guillermo Antonio Gallegos Navarrete, Lorena Guadalupe Peña Mendoza, Jose Francisco Merino Lopez, Donato Eugenio Vaquerano Rivas, Ana Vilma Albanez de Escobar, Carmen Elena Calderon de Escalon, Norma Fidelia Guevara de Ramírios, Rolando Mata Sources, Rodolfo Antonio Parker Soto, Mario Antonio Ponce Lopez and Guadalupe Antonio Vasquez Martinez.

DECRETA the following:

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TAX LIABILITY LAW FOR THE SUSTAINABILITY OF PUBLIC FINANCES AND SOCIAL DEVELOPMENT

CHAPTER I General Provisions

Object of Law

Art. 1. This Law aims to issue rules that guarantee the fiscal sustainability of the medium and long term of public finances, and that contribute to the macroeconomic stability of the country; this will be done through the establishment (i) fiscal rules that set limits on government deficit and debt, (ii) make the budget consistent with the goals set out in this Law, (iii) ensure the budgetary allocation that corresponds to social areas, and (iv) greater transparency and better accountability.

General Principles

Art. 2. This Law is based on three principles:

(a) The State of El Salvador should seek as an essential principle, within the framework of this Law, to guarantee the fiscal balance in the long term, by establishing targets for the primary balance sheet level, which allows the debt-to-GDP ratio to be lowered to a pre-established target and thereafter to be stable;

b) Medium Term Budget Principle. The preparation of the General Budget of the State should be framed in a macroeconomic scenario and indicative budgets for five years, without the latter meaning the allocation of funds or commitments for the years following the one that effectively will be submitted for approval; and,

c) Transparency Principle. All State institutions should provide full and sufficiently detailed information on the implementation of each budget, investments made, contingent liabilities based on formal commitments and results obtained semestrally, with a lag no longer than 60 calendar days. The Ministry of Finance shall be responsible for submitting consolidated reports for each period within the time limits specified, in such a way as to enable verification of the financial situation of the Non-Financial Public Sector and compliance with the the objectives of fiscal health and social sustainability.

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Application Scope

Art. 3. The provisions of this Law shall apply to the entities that make up the Central Government, understood as the Executive, Legislative, Judicial, and the Public Ministry and other institutions, as governed by the Law of State General Budget.

Also, the Non-Financial Autonomous Institutions, the Salvadoran Social Security Institute, the Executive Hydroelectric Commission of the Lempa River and the Municipalities, for the purposes of consolidation of the balance sheet Non-Financial Public Sector, will have to provide to the Ministry of Finance, all of which information that is requested to you in accordance with the provisions of this Law.

Compliance Responsibility

Art. 4. This Law will apply to all non-financial institutions of the Public Sector (SPNF). The Ministry of Finance shall be the entity responsible for the compliance with this Law and to issue the technical regulations necessary for this purpose, including exceptions, when they are necessary, for the municipalities and the Autonomous Official Institutions, not to hinder their operations or investment programs.

Definitions

Art. 5.-For the purposes of this Law, as well as the provisions of other legal regulations related to this Law, the following definitions must be taken into account:

a) Public Sector Non-Financial (SPNF): Comprises the Institutions which make up the General Government and Non-Financial Public Enterprises. The General Government includes all the institutions of the Central Government and those that finance its operation with public funds or receive grants from the State, the Salvadoran Social Security Institute, and other municipalities. decentralised institutions. The non-financial public companies comprise the Autonomous Official Institutions, such as the Executive Hydroelectric Commission of the Lempa River, the Autonomous Port Executive Commission, the National Administration of Aqueducts and Sewers and the National Lottery of Beneficence and any other institution that in the future is part of this sector;

b) Balance of the Public Sector Non-Financial or Fiscal Balance: Result that shows the difference between income and total expenditures of the Non-Financial Public Sector Dependencies and Entities;

c) Balance Sheet Non-Financial Public Sector: It is the Fiscal Balance of the Public Sector Non-Financial, excluding the interest payments on the Public Debt;

d) Public Debt of the Public Sector Non-Financial: It is the sum of the external and internal debt, of all the Non-Financial Public Sector Public Entities;

e) Retirement Debt: It is the contracted debt from the Pension System, which

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includes amortisation and interest;

f) Public Debt Public Sector Non-Financial with Pensions: The sum of the SPNF's Debt plus the Retirement Debt;

g) Floating Debt: It is essentially used to remedy temporary income deficiencies, in the terms stipulated in Art. 227 of the Constitution of the Republic;

h) Temporary Revenue: These are the resources that are obtained with exceptional character and which may alter the state's financial and financial situation; such as, sale of capital goods, capital transfers, granting of concessions, among others;

i) Current Savings: It is the difference between income Current expenditure and current expenditure;

j) Current expenditure of the Public Sector Non-Financial: These are paid expenditures for the consumption and operation of the Public Administration. They include remuneration, purchase of goods and services, commissions, current transfers, interest and others;

k) Non-Financial Public Sector Capital Expenditure: Are the expenses paid directly and indirectly to the training gross capital and purchase of real estate, intangible assets and other non-financial assets;

l) Total expenses of the Public Sector Non-Financial: It is the sum of all expenses effectively paid by the Public Sector Non-Financial, both Current, as of capital;

m) Gross Tax Charge: Percentage ratio between the amount of the taxes collected and the Nominal Gross Domestic Product, (GDP) of a given year;

n) Current Income: These come from the exercise of the coercive power of the State to impose and demand contributions for public benefit, thus as to the fines and interest generated by arrears, due to arrears or violations of the tax obligations, social security or credits granted by the public authorities: those arising from the sale of goods and services, and current transfers received from different economic agents; and,

or) Revenue Net Streams: Corresponds to current income by discounting tax refunds.

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CHAPTER II Stabilization and Fiscal Sustainability

Mediano Fiscal Framework and Long Term

Art. 6.-In order to ensure the timely and effective implementation of this Law, create the Medium and Long Term Fiscal Framework (MFMLP); consequently, the provisions, regulations, estimates and fiscal projections updated in a ten year period, contained in the said instrument, in order to strengthen the objectives and objectives defined in this Law.

The MMLP is a dynamic management tool, which illustrates and guides decision-making. strategic fiscal policy, offering a baseline of the multi-annual fiscal projections of revenue, expenditure and financing, which express global indicative ceilings for such variables; this tool shall be made and updated, with a tax projection of ten years and shall contain at least the following:

a) the basic economic scenario from which the General Budget of the State and the fiscal projections will be drawn up. This scenario will consider the official estimates of the macroeconomic variables of the Government and International Organizations;

b) The goals and limits of the main fiscal policy indicators to be achieved in the next 10 years. years, in accordance with this Law;

c) Projections of tax revenues and expenses and debt flows;

d) Programming of public investment projects, including their source of financing;

e) Level of public debt total in dollars and as a proportion of GDP;

f) Valuation on tax risks;

g) Sustainability indicators of fiscal policy in the medium and long term;

h) The percentage of execution of the current resources allocated and, in particular, of the planned investment, with the respective technical support;

i) Detailed report of all subsidies, indicating their amount, cost of administration and source of financing; and an assessment of socioeconomic impact and their contributions to equity, which should be presented six months before end each presidential term;

j) Detailed report of the results and evolution of the Finance of Non-Financial Public Enterprises (EPNFs);

k) Total amount and the characteristics of the obligations that are guaranteed or guaranteed by the State, including information on its maturity structure, the type of guarantee and

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beneficiaries, as well as contingent liabilities; and,

l) Estimate the rate of income evasion, to serve as a baseline to project successive reductions and tax expenditures, according to the Ministry of Finance's possibilities.

Fiscal Consolidation Period

Art. 7.-To comply with the provisions of Art. 1 of this Law, it will be necessary to adopt with an undelayed character, measures that allow a consolidation of public finances for the following 3 years, starting from the beginning of the Fiscal Year of 2017, for which income and expense measures should be implemented, resulting in at least 3.0% of the Gross Domestic Product.

The estimate of the pre-retirement debt target will be established in the Savings System Act. Pension.

In the period of Fiscal Consolidation the SPNF's Debt, discounting the pension debt, must be consistent with the adjustment program.

This period of Fiscal Consolidation must be adopted, in the Medium and Long Term Fiscal Framework, which has been created by Art. 6 of this Law.

Fiscal Sustainability

Art. 8.-After the period of Fiscal Consolidation, in the subsequent 7 years and henceforth, adequate sustainability must be ensured in the long term; at the end of the consolidation period expressed in Art. 7 of this Law, the ratio of the debt of the SPNF shall not exceed 45%.

At the end of the Fiscal Sustainability period and in the following years, the debt ratio of the non-financial public sector, discounting the pension debt, will be up to 42% of the gross domestic product, at levels consistent with the program.

The SPNF's debt with Pensions, will not be able to exceed 65% of GDP after the adjustment period.

In order to achieve Fiscal Sustainability, it will be necessary to adopt strategic and indispensable actions by the entities subject to this Law, aimed at generating consistent, responsible and transparent management of public finances.

From Government Tax Policy

Art. 9.-The President of the Republic, on a proposal from the Minister of Finance, within 90 days from the date on which he takes office, shall submit to the Council of Ministers, for approval, the basis of the fiscal policy. which will be applied during his administration, which will have to include a statement on the implications of his policy, on the SPNF's Balance Sheet, which should be the knowledge of the Finance and Special Committee of the

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Legislative Assembly. In addition, in the first six months you will have to present a Public Investment Program for your management period, compatible with this Law.

Fiscal Responsibility Rules

Art. 10.-The Ministry of Finance, in order to address the above mentioned article and within a period of ten years, will proceed to implement measures to ensure the goals of the SPNF as follows:

a) Reach Balance Sheet Positive primary after the end of the fiscal consolidation period. The debt limit of the SPNF and the Primary Balance, are the main rules of this Law;

b) From the third year of implementation of this Law, the tax burden must not be less than 17% of GDP; and,

c) After the Fiscal Consolidation period, current expenses should not be greater than 18.5% of GDP. For this purpose, the items of Remuneration and Goods and Services will not be able to grow beyond the growth of the Nominal GDP.

The goals contained in this provision can be modified as soon as the exception clause is invoked. expressed in this Law.

If there are modifications in the national accounts or in the methodology for the elaboration of the Gross Domestic Product, the goals of this Law must be modified to comply with the purpose of this Law. Changes must be expressed in the Medium and Long Term Fiscal Framework.

Fiscal Responsibility and Budget Balance Chapter III

Of Responsibility in the Form, Execution and Evaluation of the Result of the Budget

Art. 11.-The Ministry of Finance, in accordance with the provisions of Art. 4 of this Law, will be responsible for ensuring that, in the General Budget of the State, it is ensured that the Constitutional principles are complied with in this area. as regulated by the State Financial Administration Organic Law.

The Executive Body, in the corresponding Ramo, will have the direction of public finances and will be especially obliged to maintain the balance of the budget, to where it is compatible with the fulfilment of the aims of the State. The budgeted expenditure must be consistent with the net current income.

Similarly, it must ensure that the public sector's pre-investment, investment and debt policy programmes are met, as well as ensuring the sustainability of programs

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on social investment content in the tax policy to be issued on the terms outlined in this Act.

Budget Monitoring and Evaluation

Art. 12.-The Monitoring and Evaluation of the Budget and Public Finance will be framed in the projection of fiscal and macroeconomic goals, established in the Medium Term and Long-term Fiscal Framework. To this end, indicators should be developed to assess their compliance at the end of the fiscal year and to be a benchmark for the budget planning of the next fiscal management.

The follow-up to the Prior to this, he will be in charge of the Ministry of Finance.

Limits of Spending on Fiscal Exercises to Concurra the Presidential Transition

Art. 13.-During the fiscal year that coincides with the start of a new administration, the outgoing administration is prohibited, the execution of current expenditure in a proportion of more than forty percent of the total Current spending budget allocation, for that fiscal year.

Ban on Creating Uncontained Expenses with Funding Source

Art. 14.-Any reform of the new law or legal order, involving the administration of resources that requires current expenditure, must include its corresponding source of financing, as well as the estimate of the revenues derived from it.

Fiscal Deficit Adjustment

Art. 15.-When the exemption of applicability provided for in this Law is activated, it will be up to the Ministry of Finance to present a plan of measures to return to the goals expressed in the Fiscal Framework of Medium and Long Term, which will be implemented briefed in detail to the Finance and Special Committee on the Budget, at least with a half-yearly frequency.

Commitment to Social Development and Protection of Social Policies and Programs

Art. 16.-Social policies and programs must be financed by the insured, and the efficiency of public spending and the impact of public spending on the basis of social indicators and poverty should be evaluated. The resources of these must be incorporated within the General Budget of the State.

The planning, implementation and evaluation of policies and social programs aimed at reducing poverty will be determined by the Executive Body. in the corresponding Ramos.

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Social programs must be expressed within the Medium and Long Term Fiscal Framework, Considering the availability and financial capacity of the State, and the resources to be counted for this commitment in terms of social spending.

Within these concepts, the social programs that are implemented must be guaranteed. for the benefit of women, children, persons with disabilities, older adults and others vulnerable and extreme poverty population.

CHAPTER IV Accountability and Fiscal Transparency

Goals and Projections Report

Art. 17. -The Minister of Finance, after approval of the Council of Ministers, will have to present to the Legislative Assembly the Draft General Budget of the State, accompanied by the Fiscal Framework of Medium and Long Term.

Fiscal Assessment

Art. 18.-In the first ninety days of the year, the Ministry of Finance shall present to the Council of Ministers, and subsequently to the Finance and Special Committee of the Budget of the Legislative Assembly, an evaluation of the fiscal and compliance with this Law, at the close of the previous year next to the State Financial Management Report.

Free Access to Information

Art. 19.-The Ministry of Finance shall publish the reports referred to in this Law, in its Transparency Portal, without detriment to the right of citizens and which confers on it the Law of Access to Public Information.

Art. 20.-The Ministry of Finance shall publish monthly the balance due from requirements to the General Directorate of Treasury, goods and services and current transfers, as well as credit notes issued pending payment and balances. of the LETES, as well as the flow of the LETES issued and cancelled in each month.

Obligation to Report the Municipal Governments

Art. 21.-It shall be the responsibility of any Municipal Government, to publish an annual report of those operations of issuance or securitization of securities it has carried out to finance its operations, of which it shall also forward annually to the Ministry of Hacienda, a copy of the same, in order to be put on the institutional website, and in this way, to facilitate the access of all the citizens.

Also, the Municipalities will have to inform the Ministry of Finance when they are carrying out

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financial operations to commit flows from the Development Fund Economic and Social.

Obligation to Report the Public Sector Non-Financial, to the Ministry of Finance

Art. 22. For the purposes of monitoring and evaluation, all the institutions that are subject to the provisions of the State Financial Administration Law, will be obliged to supply the Ministry of Finance, monthly information in the true and timely form related to the financial execution, both of the revenue and expenditure items, and of the internal and external financing operations, which are included in the General Budget of the State and Special Budgets, as well as other additional information that is required.

Also, the rest of institutions that make up the Public Financial Sector shall report to the Ministry of Finance, in the same way as prescribed in the previous paragraph, in compliance with the provisions of this Law.

CHAPTER V Final Provisions, Penalties, Transitioning, and Vigency

of the Treatment to Be Given to the Retirement Scheme

Art. 23.-Within the guidelines set out in this Law, it will be the responsibility of the Superintendence of the Financial System, through the Ministry of Finance, to present a report attached to the Financial Management Report of the State of the Previous fiscal year, an actuarial report of the Social Security System, which contains the income and expenditure flows for the financing of the expenditure on the pension, with the priority objective of establishing measures that tend to balance of the Retirement system in the long term.

Applicability Exception

Art. 24.-When the state of emergency, calamity, disaster, war or serious disturbance of the order is in force in accordance with the provisions of Art. 29 of the Constitution of the Republic, the implementation of the goals may be temporarily suspended.

" When it comes to unanticipated economic events that negatively affect the economy, such as an important slowdown in growth or a negative impact by a relevant variable such as remittances, exports and decreases in the deposits of the local financial system, The Legislative Assembly will be responsible to the Legislative Assembly at the request of the Council of Ministers, to decree the temporary suspension of this Law, in a session called for this only effect.

In the cases indicated, a regularization plan must be drawn up. allow the sustainability trajectory, expressed in the Medium and Long Term Fiscal Framework, to be resumed within a reasonable period of time. For this purpose, the Ministry of Finance will issue the corresponding regulations.

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Specialty of Present Law

Art. 25. By the nature of the content of this Law and by reason of its specialty, it shall prevail over any other legal order than the contrarié, including those of those institutions which require the express mention thereof, for purposes of applying regulations such as those contained in this legal order.

Transitional Provision

Art. 26.-In relation to floating debt, the necessary measures must be taken, so that in the first year it will not be greater than 20% of the current income once the balances of the short-term debt have been placed and cancelled.

the limit set out in the previous paragraph may be modified in case no budget support loans are approved, consistent with the program established in the MPLF and established in Art. 7 of this Law.

Treatment of Special Activities Funds

Art. 27. Within a period of one hundred and eighty days, counted from the validity of this Law, it shall be regulated through a special scheme, the funds of special activities, as well as the mechanism that enables the incorporation of these funds, a gradual and systematic way, to the General Budget of the State.

By the extraordinary nature of these revenues, they are not considered as part of the current income of the State.

Sanctions

Art. 28.-The Minister of Finance will ensure compliance with this Law, especially the financial management parameters established in the Arts. 2, 7, 8 and 10. In the event of non-compliance with these obligations, the Minister of Finance may be challenged by the Legislative Assembly, and if it gives rise to a recommendation to the President of the Republic for the dismissal of the official.

The Finance Minister must present a sworn declaration of faithful compliance with the provisions of Article 227 of the Constitution of the Republic and of truthfulness and full inclusion of all the expenditures corresponding to the draft Law of General Budget of the Nation. If the case arises that there is legal impediment to incorporating some or all partial or total expenditure into the draft Budget Law, the Minister shall make it explicit in his affidavit.

For the purposes of Art. 13 of this Law, In the event that the spending limit is not met, the excess will be considered as an unauthorized expense in the budget, and will be sanctioned according to the established legal framework.

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The application of the sanctions referred to in the preceding incisings shall be subject to the approval of revenue and expenditure measures, consistent with the adjustment program established in Art. 7 of this Law.

Vigency

Art. 29.-This Decree will enter into force on 1 January of the year two thousand seventeen, following publication in the Official Journal.

GIVEN IN THE BLUE HALL OF THE LEGISLATIVE PALACE: San Salvador, ten days of the month of November of the year two thousand Sixteen.

GUILLERMO ANTONIO GALLEGOS NAVARRETE, PRESIDENT.

LORENA GUADALUPE PEÑA MENDOZA, DONATO VAQUERANO, FIRST VICE PRESIDENT. SECOND VICE-PRESIDENT.

JOSÉ FRANCISCO MERINO LÓPEZ, RODRIGO AVILA, THIRD VICE PRESIDENT. FOURTH VICE-PRESIDENT.

SANTIAGO FLORES ALFARO, FIFTH VICE PRESIDENT.

GUILLERMO FRANCISCO MATA BENNETT, RENÉ ALFREDO PORTILLO CUADRA, FIRST SECRETARY. SECOND SECRETARY.

FRANCISCO JOSE ZABLAH SAFIE, REYNALDO ANTONIO LOPEZ CARDOZA, THIRD SECRETARY. FOURTH SECRETARY.

JACKELINE NOEMI RIVERA AVALOS, SILVIA ESTELA OSTORGA DE ESCOBAR, FIFTH SECRETARY. SIXTH SECRETARIAT.

MANUEL RIGOBERTO SOTO LAZO, JOSE SERAFIN ORANTES RODRIGUEZ, SEVENTH SECRETARY. EIGHTH SECRETARY.

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PRESIDENTIAL HOUSE: San Salvador, at eleven days of the month of November of the year two thousand sixteen.

PUBESQUIESE,

Salvador Sánchez Cerén, President of the Republic.

Juan Ramón Carlos Enrique Cáceres Chávez, Minister of Finance.

D. O. No. 210 Took No 413 Date: November 11, 2016

GM/adar 14-12-2016

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