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Guatemala president faces tough fight on tax reform

* Fiscal reform plan to be rolled out soon

* President faces strong opposition to higher taxes

GUATEMALA CITY, Nov 12 (Reuters) - Guatemalan president Alvaro Colom is pushing for a fiscal reform package to boost dwindling finances needed to fight high crime and poverty, but stiff opposition threatens to kill the plan.

Colom, a center-leftist, has pledged to release the details of the proposal in coming weeks. Analysts say the president is likely to propose an increase in income tax rates and ways to get more people paying taxes.

“We are all going to have to make sacrifices because we can’t allow the economic situation and the fall in tax receipts to stop the state from functioning,” said Mario Taracena, a congressman from Colom’s National Unity for Hope Party, or UNE.

Guatemala has one of the lowest rates of tax collection in Latin America.

Rating agency Standard & Poor’s cut its outlook on Guatemala’s “BB+” debt rating a year ago to “stable” from “positive,” citing weak growth and tax collection.

This year, Guatemala’s economy has slowed sharply because the global recession has crimped demand for exports like textiles.

Further weakening the economy, Guatemalans living in the United States are sending less money home after losing their jobs or getting deported.

Tax collection in Guatemala, which also exports sugar and coffee, could fall 8.5 percent this year, the finance ministry said in September.

Despite the fiscal problems, Colom could have trouble getting fiscal reform passed by Congress, where his party lacks a majority.

“We think the government needs to focus on correcting its investments, reducing costs and being more transparent, before we talk of fiscal reform,” said Alejandro Sinibaldi, a congressman from the conservative Patriot Party.

A previous attempt by Colom to pass fiscal reforms failed in August amid criticism from companies opposed to higher taxes.

Colom came to power in January 2008 promising to reduce poverty and crack down on drug trafficking and street crime. But violence has risen since his inauguration, with more 6,000 murders a year in a country of 13 million.

“If they don’t pass this fiscal reform I doubt they’ll have much success in addressing a lot of the problems they have. They’re not going to be able to fight organized crime and drug cartels without funds,” said Heather Berkman, an analyst at the U.S.-based Eurasia Group.

The Guatemalan finance ministry expects a budget deficit equivalent to 3.1 percent of gross domestic product in 2010, even though the government has proposed cutting overall spending that year by 3.7 percent. (Editing by Chizu Nomiyama)

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