The Constitutional Chamber of the Supreme Court of Justice declared unconstitutional several provisions contained in Legislative Decree No. 113-2011, the “Law on Efficiency in Public Revenue and Expenditure,” in a decision that will have significant implications for the relationship between the Tax Administration and taxpayers.
The action of unconstitutionality was brought by the Honduran Private Enterprise Council (Consejo Hondureño de la Empresa Privada — COHEP), which challenged various measures incorporated into tax legislation in 2011 with the purpose of strengthening tax collection and expanding the powers of the then-Executive Revenue Directorate, currently the Revenue Administration Service.
Unconstitutionality of Article 5 — Sales Tax Input Credits
From a tax law perspective, a notable aspect of the ruling is the declaration of unconstitutionality of Article 5 of the law. This provision established that accumulated input tax credits arising from the Sales Tax could not be refunded or offset, and that upon cessation of business operations, any outstanding balances would automatically revert to the State.
The Chamber concluded that this regulation was incompatible with the constitutional prohibition against confiscation set forth in Article 109 of the Constitution of the Republic. A central line of reasoning advanced by the justices was that input tax credits constitute a legitimate legal and proprietary asset of the taxpayer, and therefore the State may not appropriate them through a statutory provision that automatically extinguishes such right.
The ruling is of particular importance for export companies and taxpayers carrying significant input tax credit balances, as it reaffirms that such credits form part of their patrimony and cannot be forfeited merely by reason of ceasing operations.
Unconstitutionality of Article 20 — Sanctioning Powers
The ruling also struck down Article 20 of the law, a provision that granted the Tax Administration broad enforcement powers to impose severe measures against delinquent taxpayers, including the suspension of export licenses, revocation of tax incentives, and closure of business establishments.
Although the declaration of unconstitutionality of this article was grounded in a procedural defect in the legislative process, the decision carries relevant consequences for the exercise of administrative sanctioning authority. The ruling serves as a reminder that coercive tax enforcement measures must be subject to strict constitutional scrutiny and must fully respect the guarantees of due process of law.
Constitutionality Upheld — Article 13: Advance Withholding of Income Tax on Imports
Conversely, the Chamber upheld the constitutionality of Article 13, concerning the advance withholding of Income Tax applicable to certain imports. The Court held that this mechanism does not constitute an autonomous tax or a tax penalty, but rather an advance collection instrument designed to secure compliance with future tax obligations.
This aspect of the ruling is particularly significant as it confirms the legislature’s authority to establish tax control and advance collection mechanisms, provided they do not produce confiscatory effects or infringe upon the fundamental rights of taxpayers.
Constitutionality Upheld — Publication of Tax-Delinquent Taxpayers
Likewise, the Chamber declared constitutional the authority to publish information concerning tax-delinquent taxpayers where the debt is final and enforceable. According to the ruling, the disclosure of accurate information regarding outstanding tax liabilities does not constitute an unlawful infringement of the right to honor and serves the legitimate public interest purposes of transparency and credit protection.
Unconstitutionality of Article 10 — Budgetary Transfers
Another aspect of the ruling, unrelated to tax matters but concerning budgetary appropriations, addressed Article 10, which governed automatic budgetary transfers. This provision authorized the Ministry of Finance to redirect unexpended funds to a so-called “Social Programs Fund.” COHEP argued that this provision infringed upon Article 205 of the Constitution, which vests exclusive budgetary powers in the National Congress, and that it undermined the principle of separation of powers. The Constitutional Chamber upheld this argument and declared the article unconstitutional, finding that only Congress holds the authority to approve and amend the General State Budget — powers that are non-delegable and not subject to discretionary modification by the Executive Branch, except in the exceptional circumstances expressly provided for in the Constitution.
Implications
Taken together, the ruling more precisely delineates the scope of the State’s taxing power. While acknowledging broad authority to collect revenue, audit, and ensure compliance with tax obligations, the decision reaffirms that such powers are bounded by the principles of legality, proportionality, legal certainty , and the prohibition against confiscation.
By virtue of its content, the ruling is poised to serve as a leading precedent for future discussions on input tax credits, the sanctioning powers of the Tax Administration, and the design of tax collection mechanisms in Honduras.
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