Paraguay Rules Out Raising Its 10% Tax Rates to 14%

Paraguay's flat 10% tax rates drew a direct challenge in the Senate this week, and the answer came back inside a day. On 27 August, Senator Silvio "Beto" Ovelar proposed lifting the rate to 14% to fund a settlement with striking doctors. By the following evening the tax authority, the president of Congress and the industrial sector had each rejected it.

What Was Proposed, and What Was Meant

Ovelar spoke at a meeting that brought senators together with the health and economy ministers and representatives of the medical sector. He named the personal income tax, the IRP, and put the increase at 10% to 14%, worth roughly US$ 700 million a year by his own estimate. He also floated moving VAT, and taking the corporate income tax, the IRE, from 10% to 15%.

His framing was defensive from the start. "Los que ganan más, que aporten más," he said, meaning those who earn more should contribute more, while calling the proposal disagreeable and conceding that it ran against the position of the government and of President Santiago Peña. He added that rates would have to move eventually: "Hay que elevar impuestos, si no es hoy, mañana."

A day later he corrected himself. He had meant the IRE, not the IRP. "Me equivoqué en mi exposición ahí," he told reporters on 28 August, putting the corporate rate at 10% to 14% and the yield above US$ 600 million.

Why the Correction Matters

The two versions are not variations on a theme, and the collection data explains why.

DNIT's 2025 figures put internal tax revenue at G. 24.39 trillion. VAT accounted for 52.8% of that and the corporate IRE for 34.6%. The IDU dividend tax took 6.6%, the ISC 2.3%. The personal IRP contributed 2.4%, or about G. 587.6 billion. At the late-August rate of roughly G. 5,900 to the dollar, that is close to US$ 100 million for the entire tax.

Lifting a rate from 10% to 14% raises the take by two fifths. Applied to the IRP that is on the order of US$ 40 million on a static basis, not US$ 700 million, and not within a factor of fifteen of it. Run the same arithmetic on the IRE, which brought in roughly US$ 1.43 billion in 2025 on the same conversion, and two fifths comes to about US$ 570 million.

Static estimates ignore behavior, and no rate collects proportionally more once taxpayers respond. The narrower point stands regardless: only the corrected version of the proposal could have produced the money it was sold on.

Three Rejections in One Day

Óscar Orué, who heads the DNIT, said the government's position is not to raise general taxes, and denied that any increase in the tax burden is under study. What his agency is working on instead raises revenue without touching a headline rate: a project on taxing electric vehicles, and the bill on corporate reserves due in Congress once the 2027 budget is filed.

Basilio "Bachi" Núñez, who presides over the Senate and over Congress, was blunter. "Yo adelanté mi postura de que no estoy de acuerdo con ninguna elevación impositiva," he said on 28 August: he had already stated he disagreed with any tax increase whatsoever.

His preferred sequence was collection before rates. "Nosotros primero lo que tenemos que hacer es recaudar más, formalizar las empresas y después ver otras posibilidades." Núñez argued that a rise in income or consumption taxes passes straight through to workers and small businesses, and warned that it would put at risk the fiscal stability that is Paraguay's main argument for foreign investment.

Industry made the same case in commercial terms. Enio Quevedo, president of the concrete chamber CAPIHE, called a rate rise a direct collision with the country's investment pitch. An investor weighing a ten- to fifteen-year commitment, he said, is not looking for a state that reaches for tax increases at the first union pressure.

The Strike Behind the Proposal

None of this started as a tax debate. The Sindicato Nacional de Médicos (Sinamed) held a five-day national strike from Monday 24 to Friday 28 August, with some 5,000 doctors marching from the health ministry to the economy ministry.

The demand was a 76% salary adjustment, about G. 3 million per contract, alongside hospital supplies and permanent appointments for roughly 9,000 professionals working on temporary contracts. Sinamed's case rests on erosion: a public-system doctor earned the equivalent of about 2.8 minimum wages in 2012 and around 1.5 today.

Economy Minister Óscar Lovera called the 76% impossible to finance, at over US$ 100 million a year, and offered a graded health career tied to training and specialization instead. The strike closed on 28 August with no agreement, and the strike committee at the Acosta Ñu children's hospital reported resignations from 141 of its 164 specialists.

The fiscal room is genuinely thin. Economist Jorge Garicoche of Mentu puts the rolling twelve-month deficit at G. 9.7 trillion, or 2.4% of GDP, roughly US$ 1.6 billion. The Caja Fiscal pension system took in G. 367.7 billion in July against G. 545.4 billion of spending, a gap of about US$ 30 million in a single month.

What It Means If You Moved Here for the Rates

Begin with what was never in play. Both the IRP and the IRE are taxes on Paraguayan-source income. The territorial system leaves genuinely foreign-source income outside the Paraguayan net because of where that income arises, and a rate change does not touch the source test. For a tax resident whose earnings are all foreign, a 14% IRP would have applied 14% to nothing.

Where a change would land is local income: a salary paid here, clients invoiced from here, or the profits of a Paraguayan company you own. Among our readers that is a smaller group than the headlines suggest, though not an empty one.

The more useful reading of the week is behavioral. It does not show that rates can never rise. It shows who moves when someone suggests it, and how fast. The proposal came from inside the governing party, and the tax authority, the presiding officer of Congress and the private sector shut it down within 24 hours, each citing investor confidence as the reason. Paraguay's tax system has carried the same headline rates since Ley 6380/2019.

None of that is a guarantee, and the pressure has not gone anywhere. The deficit is real, Sinamed has called an assembly on further action, and the DNIT's own agenda is a list of ways to collect more money. The likelier direction of travel is a broader base, through reserves, enforcement and formalization, rather than a higher percentage.

Which of those two your own plan is exposed to is worth knowing. The longer view on that question sits in our standing assessment of whether Paraguay's 0% will last, and this week goes into it as evidence rather than as a scare.

US citizens and green-card holders: none of this changes your position. The United States taxes worldwide income on the basis of citizenship, so whether Paraguay charges 10% or 14% on local income is not what decides your bill. Our guide for US persons sets out what does.

Frequently Asked Questions

Is Paraguay raising income tax to 14%?

No. The proposal came from one senator on 27 August 2026 and was rejected the next day by the DNIT, by the president of Congress and by business groups. No bill has been introduced. The rates the debate concerned are unchanged: up to 10% on Paraguayan-source personal income, 10% on corporate profit and 10% VAT.

Would a higher IRP or IRE affect the 0% on foreign income?

No. Both taxes reach Paraguayan-source income only, and the territorial rule turns on where income arises rather than on the rate applied. A tax resident whose income is entirely foreign-source would be unaffected by either figure. US citizens and green-card holders remain taxable by the IRS on worldwide income regardless.

Could a tax increase come back later?

It could. Paraguay is running a deficit of around 2.4% of GDP, the medical dispute is unresolved, and Ovelar himself said increases would arrive "si no es hoy, mañana." What the government is actively pursuing, however, is more revenue from the rates already in force.

Weighing Paraguay's 10% headline against how much of your income it would even reach? That answer depends on where your income arises rather than on the percentage, and it is worth settling before you file anything here. Write to us.

Disclaimer: General information about a rejected legislative proposal and about tax rules currently in force, not legal or tax advice. Political positions shift and no bill has been published. Confirm your own position with a Paraguayan tax professional before acting.

Sources

• ▹ABC Color: ¿Se viene una suba de impuestos?: Esto dice la DNIT sobre propuesta de Ovelar
• ▹Última Hora: Lluvia de propuestas: Legisladores tantean iniciativas para fondear el sistema público de salud
• ▹El Trueno: Beto Ovelar aclara su propuesta de suba de impuestos: era sobre el IRE, no el IRP
• ▹Diario HOY: Rechazan subir impuestos para financiar reclamo médico
• ▹ABC Color: La razón por la que subir impuestos puede ser "peor que la enfermedad", según gremio
• ▹ABC Color: Recaudación tributaria en Paraguay se multiplicó por 4,6 en los últimos 15 años
• ▹ABC Color: ¿Subir impuestos?: Sepa las tres prioridades que Paraguay debe definir este año, según economista
• ▹Infobae: La huelga de médicos paraguayos concluye con anuncios de renuncias masivas y sin acuerdos