Paraguay's tax merger faces test: can institutions deliver 12% revenue goal?

The institutional ambition of Santiago Peña's government, two years into its term, is better measured by what it has transformed than by what it has built from scratch. The merger of the Undersecretariat of State for Taxation and the National Customs Directorate into a new National Directorate of Tax Revenue, together with the creation of the Ministry of Economy and Finance—which absorbed the historic Ministry of Finance, the Technical Secretariat for Planning, and the Secretariat for the Civil Service—represents perhaps the most profound institutional overhaul of the Paraguayan state in decades. What crystallizes the assessment of the Peña era today is not an isolated macroeconomic data point, but rather the question of whether those structural reform bets have begun to bear fruit or remain promises awaiting execution.

The tax-customs merger was technically enacted on August 4, 2023, in the final days of Mario Abdo Benítez's term, but the project was presented by the Honor Colorado team as an initiative of the then president-elect. Óscar Orué, who ran the SET and today heads the new National Directorate of Tax Revenue, set a concrete target: raising the tax burden from 10 to 12 percent of gross domestic product and boosting collection by some 400 million dollars annually. That promise, formulated in a country that has historically had one of the lowest tax burdens in the region, represents a transformation of considerable magnitude for an economy the size of Paraguay's.

The reform, however, did not arrive without resistance. Accounting authorities such as Nora Ruoti questioned technical and operational aspects of the new scheme, while the then director of Customs, Julio Fernández, warned about the risks of diluting the operational autonomy of an institution that processes some 5,000 operations daily and rotates 100 officials per month. His argument was precise: in foreign trade, decentralized decision-making capacity is not a bureaucratic privilege but a functional necessity. The tension between consolidation efficiency and operational agility remains the critical point on which the new institutional architecture will have to be judged.

The second major legislative bet was the creation of the Ministry of Economy and Finance, the first law enacted by Peña as president, just days after taking office in August 2023. The new portfolio unified functions previously dispersed across three separate agencies, following the logic of concentrating fiscal policy coordination, strategic planning, and civil service management under a single political and technical roof. In theory, that concentration should accelerate decision-making and eliminate the interagency frictions that have historically delayed budget execution in Paraguay. In practice, consolidating power in a single portfolio also concentrates political and technical risks.

What makes this assessment relevant today is that these institutional reforms took place at a moment when Paraguay is navigating significant external constraints. The Paraguayan economy, heavily dependent on soybean and beef exports, is exposed to commodity market volatility and to the climate disruptions that severely affected agricultural output in recent cycles. In that context, strengthening domestic tax collection is not an abstract long-term objective but a concrete fiscal necessity to sustain public spending without widening the deficit in years of irregular agricultural income.

The question that investors and analysts should be asking at this point in the Peña administration is whether the reforms in institutional architecture have been accompanied by the changes in organizational culture and technical capacity that make them effective. Merging structures on paper is politically visible; transforming internal processes, staff incentives, and the quality of control is what determines whether the tax burden truly rises from 10 to 12 percent or whether that target remains an exercise in fiscal wishful thinking.

Looking to the coming months, the indicators to watch are clear: the trajectory of consolidated collection under the new Directorate of Tax Revenue, budget execution under the Ministry of Economy and Finance framework, and any sign of tension between the pace of administrative integration and the operational continuity of foreign trade. Paraguay has a window of opportunity to demonstrate that institutional reform was a catalyst for efficiency and not a cosmetic reorganization. The collection numbers over the next two quarters will be the first real verdict.