A new bill, agreed between the government and the private sector, expands tax incentives granted to companies in the sector through the Certificate of Industrial Promotion.
The text was drafted after the government and the private sector reached consensus on how to define tax incentives to which companies in the sector are entitled to.The project will be submitted to the Cabinet this month and will be discussed in the current legislative period.
According to the ICEFI, "tax incentive policies seem to be a lost opportunity because of permanent tax expenses and the lack of tangible social benefits."
From a statement issued by the ICEFI:
Within the framework of the international meeting on Tax Justice and Transnational Fraud, held in Costa Rica, a study was presented on October 20 entitled 'The effectiveness of taxincentives for investment in Central America' in which an analysis was undertaken of the Central American experience in investment attraction through tax incentives.
Raw materials, veterinary pharmaceuticals, pesticides, seeds and live animals are exempt from the 15% sales tax.
The current document sets out eight categories of items from raw materials,supplies, equipment and machinery used to produce them. The different classifications contain 323 tariff items for tax free products.
Two companies have already registered in the system that allow operators in the Colon Free Zone to open subsidiaries for retail sales in the 16 blocks of the area undergoing a redevelopment process in the old town of Colon.
Companies wishing to apply to receive the benefits offered by Colón Free Port (CPL by its initials in Spanish) can now register as an infrastructure or commercial investor with legal advice to the Colon Free Zone (CFZ).
A bill originating from the executive branch proposes stimulating the purchase of equipment and agricultural materials by reducing sales tax from 15% to 3%.
The bill on Agrifood submitted to Congress proposes a series of measures to stimulate the agricultural sector, including a reduction from 15% to 3% in the sales tax on the purchase of machinery and other materials.
Companies operating under the Law for the Promotion of Export Activities and Maquilas will be able to deduct the VAT paid on electricity.
By presenting a certifying document to the Superintendency of Tax Administration (SAT) exporters will be exempted from paying VAT on their electricity bill, since it is a"... tax benefit according to decrees 29-89 and 19-2016 " explained the lawyer Rodrigo Barillas in an activity organized by Agexport.
A bill seeks to exempt from sales tax imports of agricultural machinery, cleaning equipment and other inputs required by the agricultural sector.
The draft bill will be presented by the Executive Branch, and according Wilfredo Cerrato, head of the Ministry of Finance,"... once the proposal has been sent to the legislature for study the conditions will be defined for justifying exemption from payment of tax.'This will be how we handle the issue for any sector, because we have to see what we get in exchange for the state sacrificing taxes' ... ".
The organization says there is an urgent need to raise revenue and reduce expenses, "including the public sector wage bill, which is growing rapidly."
The report "Economic assessment of Costa Rica 2016" by the Organisation for Economic Co-operation and Development (OECD) highlights the fiscal problem as the main challenge for the country on its way towards accession to the bloc.
Main challenges and key recommendations for 2016-17:
Challenge: Tax revenues are low and spending is increasing rapidly, pushing public debt to high levels.Public administration is highly fragmented and the Ministry of the Treasury has limited control of the total public expenditure.
Recommendation: Reducing the central government deficit by 2% of GDP during 2016-17 and then an additional 1.5%, approving and implementing the proposed tax reform, combating tax evasion, removing tax exemptions that have no economic or social justification, and containing expenditure growth. Introducing a medium-term fiscal framework with a clear and verifiable rule for expenses. Improving efficiency in public spending by strengthening the authority of the Ministry of Finance to control overall public sector spending and introducing a results-based budget.
It has been reported that one of the 17 free zones operating in the country has started the process of closing its operations entirely due to the legal uncertainty generated by the emergent employment law.
Companies operating in free zones have spent several months denouncing the serious situation they have faced since the Emergent Act for the Conservation of Employment was implemented, instead of encouraging investment and job creation, it has become a good example of how to discourage investment in a country.
By filing of a lawsuit arguing unconstitutionality the union of free zones aims to once again include the 25 sectors which were excluded from receiving tax benefits under the new law.
The regulations of the controversial Emergent Act for the Conservation of Employment are still under review by the Attorney General's Office and authorities at the Ministry of Economy stated they would evaluate the possibility of modifying it, since the law is already in force and can only be revised by Congress.
From 2014 to 2015 the size of central governments remained constant at an average 18.5% of gross domestic product (GDP).
From the introduction of the report: "Macrofiscal Profiles: 6th Edition" by the Central American Institute for Fiscal Studies (Icefi):
2015 proved to be a period of low tax advance for the Central American region. On average, the size of central governments remained constant compared to 2014, at 18.5% of gross domestic product (GDP). However, not all nations maintained this trend in the same way. While the governments of Nicaragua, Costa Rica and El Salvador, some of the largest fiscally in the region, continued to increase their participation in the economy, reporting increases of 1.5, 0.7 and 0.7% of GDP, respectively, the Government of Guatemala - one of the smallest in the world became even smaller, being reduced by 1.2% of GDP. For its part, the Government of Honduras reported a small decrease of 0.2% of GDP, fully converged with its policy of fiscal austerity, while that of Panama had a transient contraction of 1.4%, reflecting a reorganization established by the new administration and that, according to the plans for 2016, will be reversed in full.
In response to the severe water supply crisis in Costa Ricatax exemptions have been proposed for the purchase of materials, equipment and devices for saving water.
The state run Aqueducts and Sewers company (AyA) is preparing a bill to exempt three taxes on buying water saving devices such as low consumption tanks, water saving devices for pools or drinking fountains, ejector aerators, filters, faucet timers, volumetric reductors, and low consumption irrigation systems, among other things.
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