AI spell on El Salvador: President prepares bill to exempt tech from taxes

The move is seen as the Bukele administration's larger initiative to modernize the nation's economy.
Baba Tamim
President of El Salvador Nayib Bukele.
President of El Salvador Nayib Bukele.

Casa Presidencial/Getty Images 

The president of El Salvador has announced that he would propose to the nation's legislature the following week to abolish all taxes on technology. 

The president intends to introduce legislation that would eliminate all taxes on technological innovations as well as computing and communications hardware manufacturing etc.

"Next week, I'll be sending a bill to congress to eliminate all taxes (income, property, capital gains, and import tariffs) on technology innovations, such as software programming, coding, apps, and AI development," President Nayib Bukele tweeted on Friday. 

The legislation aims to encourage the development of El Salvador's technology industry and increase foreign investment there.

This program is a part of the Bukele administration's larger initiatives to modernize the nation's economy and lessen its reliance on conventional sectors like industry and agriculture.

To encourage innovation and digitization across multiple industries, the government has been funding entrepreneurship programs, education initiatives, and infrastructural projects.

If the bill is passed, El Salvador might become a desirable location for tech firms and startups looking to set up businesses in Central America.

Bitcoin city to tech hub 

Although it is not yet known if this regulation would apply to bitcoin (BTC) applications, El Salvador is recognized for being bitcoin-friendly, and in 2021 it will become the first country to legalize cryptocurrencies. 

Earlier in 2023, the Central American country's legislature approved a measure opening the door for a bond backed by bitcoin.

The Salvadoran president is eager to turn his country into a cryptocurrency hotspot, with plans to make bitcoin legal tender in 2021 and to build the world's first "bitcoin city."

El Salvador became the first government in Central America to accept bitcoin as legal tender in an effort to increase financial inclusion, making it simpler for its citizens to transfer money home from abroad and lessen reliance on the US dollar.

The International Monetary Fund (IMF), which continues to doubt El Salvador's embrace of Bitcoin, criticized the decision.

However, as previously reported by Finbold, a financial news outlet, IMF, the major financial agency, acknowledged in February 2023 that the threats associated with El Salvador's adoption of Bitcoin "have not materialized."

El Salvador's decision to accept Bitcoin has been praised by many as a brave and innovative action that could open the way for other nations to follow suit, despite some early skepticism and criticism. 

As the role of cryptocurrencies in the global economy continues to change, the rest of the world will be intently watching the success or failure of this experiment.