This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 TEGUCIGALPA 002110 
 
SIPDIS 
 
FOR DS/OFM/VTC/TC - W. NEMETH 
 
INFO WHA/EX/PMO AND WHA/CEN 
 
E.O. 12958:  N/A 
TAGS: OFDP AMGT HO
SUBJECT:  EMBASSY TEGUCIGALPA MAY LOSE GASOLINE TAX 
EXEMPTION 
 
 
¶1.  This is an action request -- see paragraph 7 below. 
 
¶2.  SUMMARY:  Honduran tax law changes jeopardize the tax 
relief Tegucigalpa currently enjoys with respect to 
gasoline purchases.  The U.S. Mission may soon lose its 
current gasoline tax exemption, a discount of about 40 
percent from the price paid by regular customers without 
tax-free status.  We request OFM's guidance on how best 
to prevent the loss of this benefit, an annual cost 
difference of over 90,000 dollars per year for official 
and personal purchases.  This message supplements a 
separate, more general cable on bilateral sales tax 
issues.  END SUMMARY 
 
¶3.  A special relationship:  By buying in bulk, Embassy 
Tegucigalpa has always been able to purchase duty-free 
gasoline for its official vehicles.  In 1999 we 
negotiated a special procedure with the government of 
Honduras and Texaco, whereby three different types of 
taxes and import duties were waived for individual 
purchases at two local gas stations.  The customer 
presents a special Embassy-generated discount card and 
all three gasoline taxes are discounted at point-of sale. 
The current price paid for official and personal gasoline 
purchases is 28 Lempiras per gallon (about 1.60 U.S. 
dollars), a savings of 40 percent over the regular retail 
price of 46 Lempiras (2.64 U.S. dollars).  We are one of 
only two diplomatic missions that receive tax-free 
gasoline, mostly because the U.S. Mission's buying power 
makes it worthwhile for companies like Texaco to do the 
associated tax exemption paperwork.  Since gasoline taxes 
are levied under a separate law, unrelated to the regular 
sales tax, our gasoline discount remained in place 
despite last summer's tightening of Honduran sale tax 
laws. 
 
¶4.  Historical background:  The Honduran government has 
traditionally granted the U.S. Mission gasoline tax 
exemptions on consumption taxes as well as import duties. 
A value-added tax known as "Fondo Compensatorio de 
Subsidios" (Subsidy Compensation Fund) was not exempted 
for the U.S. Mission until 1995.  Relief from this tax 
was granted annually as a special consideration to the 
U.S. Mission, rather than an obligation under 
international law.  In 1998, a government decree 
converted this tax into the "Aporte para la Atencin de 
Programas Sociales y Conservacin del Patrimonio Vial" 
(Contribution for Social Programs and National Highway 
Conservation), establishing its rate at US 0.80 per 
gallon.  This surcharge is part of the present formula 
used to determine the cost of gasoline and one of the 
three types of taxes from which the U.S. Mission has been 
exempt since 1999. 
 
¶5.  Others want in:  The Honduran government has been 
n 
under increasing pressure to offer duty-free gasoline to 
other foreign missions.  Last year's tax law changes, 
followed by substantial increases in the local 
bureaucratic requirements for sales tax relief, prompted 
other missions to begin looking for tax advantages 
similar to those enjoyed by the U.S. Mission.  A separate 
message describes other effects of the June 2002 tax law 
changes on the U.S. Mission. 
 
¶6.  The Honduran perspective:  A portion of this tax was, 
in fact, a sales tax, and all of it was ad valorem.  It 
was changed to an indirect tax in April, 2003, as an 
intentional policy to flatten out the income stream and 
stabilize government revenues.  Honduras is not the only 
country in the world that taxes gasoline heavily.  The 
gasoline tax is part of the Honduran government's efforts 
to balance its budget and qualify for an IMF program. 
 
¶7.  The crackdown:  On June 9th of this year, the 
Ministry of Foreign Affairs sent a diplomatic note to the 
Dean of the Diplomatic Corps clarifying the Honduran 
government's present policy on duty-free fuel products. 
Honduras recently abolished all other consumption and 
import taxes on fuel products, at the same time raising 
the "Patrimonio Vial" to over 1.05 dollars per gallon, 
about 40 percent of the retail cost of gasoline.  The 
June note stated that this was an indirect, value-added 
tax and thus no further exemptions would be allowed.  The 
Ministry cited Article 34 of the Vienna Convention, 
stating that a diplomatic agent shall be exempt from all 
taxes and duties except indirect taxes that are normally 
incorporated in the price of goods or services.  Ministry 
officials have verbally informed the Embassy that this 
interpretation precludes any continuation of tax relief 
on gasoline for the U.S. Mission, at least after our 
current bulk purchase permit expires in early March, 
¶2004. 
 
¶8.  If it walks like a duck...  Tegucigalpa believes any 
tax that can be easily identified and quantified is a 
direct tax within the meaning of the Vienna Convention. 
We understand that there are highway repair fund 
surcharges incorporated into the cost of gasoline in the 
United States.  But we also understand that these user 
fees are only a fraction of overall U.S. fuel costs, as 
opposed to the 40 percent "Patrimonio Vial" in Honduras. 
We also find it highly coincidental that this surcharge 
was raised just as other taxes were being eliminated, 
conveniently allowing the same revenue stream to the GOH 
but under the guise of a user fee or indirect tax. 
 
¶9.  Guidance requested:  Tegucigalpa needs to develop an 
effective strategy for preventing the elimination of fuel 
tax exemptions by the Honduran government.  Our current 
bulk exemption expires in early March.  Please provide 
talking points, diplomatic note language and other 
guidance, backed, if needed, by reciprocal tax treatment 
of the Honduran mission in Washington.  Many thanks. 
 
Palmer