Paraguay maintains one of the lowest tax burdens in Latin America, with incentives such as the Maquila Law and free trade zones. However, economists consulted warn that these attractions are no longer sufficient to guarantee long-term foreign investment.
For Sergio Sapena, the country's main weakness lies in the low quality of public services and infrastructure. “Low tax rates are insufficient and rank third in importance. In first place is the availability of infrastructure, communications, electricity, public transport, health, security, housing, and education, sectors where we rank last in Latin America,” he said. In second place, according to him, comes legal security.
Sapena argued that Paraguay does not need to raise taxes, but rather expand its borrowing capacity to carry out public works. “We could temporarily increase the fiscal deficit to invest for several years in health, education, housing, transport, and infrastructure,” he said.
The economist also criticized the bureaucracy in procedures to access tax benefits, which take three to six months, compared to one to three months in other countries in the region. “These benefits offered by Paraguay to investors have the characteristic of being more bureaucratic and slow, but later there is low or almost no post-investment control, unlike other countries in the region, where there is strict and greater control. In other words, investors in Paraguay have greater freedom regarding state control,” he pointed out.
Hugo Royg, in turn, highlighted that the investor mainly analyzes the cost-benefit ratio. “Investors will say: ‘going to this country, I have cheap energy, cheap labor, low tax burden. But what do I get in return?’ So, it's not enough. And what do they ask for in return? Legal security, institutional quality, logistical ease, connectivity, less bureaucracy, skilled labor, and they are willing to pay according to their productivity,” he explained.
Royg warned that Paraguay risks becoming just a “cheap destination” for opportunistic short-term investments if it does not improve its institutional quality and human capital. “The fiscal situation is at the limit, deteriorated, not transparent. Inflation is being controlled by the exchange rate, but not by structural issues,” he questioned.
Both economists agreed that infrastructure is one of the main challenges. Royg emphasized that the country could waste its geographical advantages — such as the waterway and proximity to important markets — if it does not invest in logistical connections. “It is necessary to maintain infrastructure, enrich capacity,” he stressed.