Andorra - Domestic policy

Andorrans had traditionally pursued agriculture to make their living. While sheep are still raised and the traditional crops of tobacco and potatoes are still sown, Andorra's livelihood now depends upon tourism and an emerging service industry of financial institutions. Domestic policy, therefore, centers upon efforts to assure that outside guests and capital continue to flow into the country. There is no income tax in Andorra, a tradition that has attracted wealthy residents who live in the country and, in some cases, establish financial institutions such as banks and insurance companies. Andorra has tight banking secrecy laws to encourage the continued presence of such institutions. The U.S. government and several European governments have expressed concern that such laws encourage money laundering and the investment of illegally gained capital in Andorra.

Raising revenue has become an important problem for Andorra's government. Because large numbers of foreign laborers have been necessary to build Andorra's many hotels and restaurants, there has been a need to construct housing, hospitals, and schools for these laborers and their families. In addition, it has been necessary to improve roads, lay sewer lines, and undertake a range of other tasks endemic in countries experiencing rapid growth—and to accomplish such efforts without an income tax. Some steps have been taken to keep the Andorran treasury at least partly filled. Foreigners must pay an annual levy in order to maintain the right to stay in the country. This annual levy provides funds for a substantial part of the country's budget. A small import tax on the large amount of consumer goods brought into the country for sale to visitors also supplies revenue for the country's treasury. The only tax on the individual Andorran citizen is a modest fee collected for telephone and electricity use. The Andorran government has run a deficit since the early 1990s and methods short of an income tax are being considered to raise further revenues.

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