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The Economic Activity of Panama

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The economy of the Republic of Panama is fully dollarized and is principally based on a well-developed services sector which comprises banking, commerce, tourism, trading, the Panama Canal where the Colon Free Trade Zone is located, insurance, medical and health, container ports and private industries. These economic services account for about 80% of Gross Domestic Product. The Panama Canal, which was acquired by the government in 1999, is one of the most significant services because it has given rise to construction projects in the country, massive employment, and pumps in millions of dollars from toll revenues.

The economy is further boosted by such other sectors as international trade, tourism, real estate, manufacturing, transportation, and fiscal reforms, among others. International trading is done largely at the Colon Free Trade Zone, which accounts for 92% of the country’s exports consisting mainly of coffee, and other agricultural products like banana, shrimp, sugar, and clothing materials. The manufacturing industry produces aircraft spare parts, cement, drinks, adhesives and textiles.

Tourism continues to contribute to economic growth by being a major dollar earner through a program that attracts an increasing number of tourists from various parts of the world. The country’s local transportation also shares in this growth by maintaining highways and roads to help in the efficient movement of economic goods and services.

The taxation system is governed by the Fiscal Code that provides for an application of a tax only to income and gains derived from business. New tax reforms are also implemented to impose a 1.4% tax on the gross revenue of companies and 1% levy on firms operating in the Colon Free Trade Zone. The government has also proposed a flat tax system—or a 10% flat tax—to raise local revenues and put inflation under control.