A State Department oversight, apparently exempting U.S. citizens here from paying income tax under the newly signed Panama Canal treaties, is causing both consternation and hilarity among Canal Zone residents.
The error appears in the treaties' implementing agreements, also signed by the United States and Panama, in which Article 15 says that U.S. citizens and dependents employed by the canal authority "shall be exempt from any taxes, fees or other charges on income received as a result of their work."
The same exempting language appears a second time in the section describing taxation for the U.S. forces stationed here.
An official at the State Department's legal office conceded that the word "Panamanian" had been omitted and that the text should have read "exempt from any Panamanian taxes."
Canal Zone residents discovered fram tax payments as they studied the full text of the two treaties and their annexes, published in special supplements of the "The panama Canal's" Spillway" and the "Southern Command News."
By Monday morning the government's information office was swamped by inquires and the tax issue had become the talk of the Zone.
Administration legal experts studying the treaties for clauses then might qualify the tax language failed to find any. A State Department legal office reached by telephone conceded, with some embarrassment," "I am forced to say that the [tax] provision stands on its own."
"We're all jubilant," said an employee in the canal company information office. "About 10 people I've had coffee with this morning said if that's the case they'll stay on here after the treaty. After a year of terrible news it's been the nicest thing we've heard."
Some residents held impromptu strategy talks about tacties to be followed if the phrasing turned out to be a mistake. A few chuckled at the delight of "catching the State e Almighty," Others said they might fight to keep the tax exemption.
In a second telephone conversation, the State Department legal officer confirmed that the word "Panamanina" had indeed been omitted by mistake but said the context makes it clear that the intent of the provision was to exempt U.S. citizens from paying Panamainian income tax, not from U.S. taxes.
The agreement, the official said, had been signed only by the negotiating teams of Panama and the United States. Thus, unlike the treaties, it needed no ratification, and cannot overrule U.S. law.
"It should have been more specific I guess," he said. "The best we can do is to clarify the language in testimony before Congress. The provision is [WORD ILLEGIBLE] in agreements we have with other nations."