Costa Rican Fiscal Reform Won’t Happen Tomorrow

Based on prior evidence, the much needed fiscal reform in Costa Rica may take a year and a half to become a reality.

Tuesday, September 21, 2010

The country experienced a fiscal deficit of $997 million in the first 8 months of this year, 70% more than the same period of 2009.

The approval of the fiscal reform promoted by the Chinchilla administration could become a very long process, taking between 10 and 44 months, according to experts.

And there is no way to be sure that it will be finally approved. The current initiative is apparently similar to the one promoted by Abel Pacheco in 2002-2006, and that was finally rejected.

The main problem is that the current situation is very different than during Pacheco’s administration. An article in elfinancierocr.com remarks that “the fiscal reform is becoming a key issue for the country. One of the reasons is that Moody’s decided to grant the country a remarkable Baa3 credit risk rating, a decision which considered that Costa Rica would approve the reform in the short term”.

More on this topic

Interest Rates Rise Forecasted in Costa Rica

January 2016

An announcement from Moody's confirms the limited room for maneuver left to the country when obtaining external financing, compromising access to credit for the private sector.

Costa Rica has received a new warning over a possible lack of access to funds in the international market with which to alleviate its growing fiscal deficit.

Costa Rica: Ratings Agencies Insist on Fiscal Adjustment

April 2015

Fitch, Moody's and Standard & Poor's are once again warning of the need to generate more revenue and cut public spending in order to avoid "negative consequences for ratings."

On average agencies provide a period of 12-18 months for the fiscal deficit and public debt to stabilize, while clarifying that "...

Costa Rica: Tax Exemptions Revised

February 2015

As part of a plan to reduce the fiscal deficit, the Finance Ministry is preparing a bill which aims to amend the existing tax exemptions scheme.

This project also seeks to create penalties for 1,259 misuse of tax breaks reported by the Technical Services Department up until 2014. It is anticipated that the initiative will be submitted to the Legislature in no more than two weeks.

Costa Rica: Global Income and VAT in Proposed Tax Plan

June 2014

Replacing Sales Tax with VAT, applying a system of global income and maintaining exemptions in free zones are part of the projects being prepared by the government.

With the three projects he plans to introduce in the Legislature, the Executive leader intends to increase total tax revenue to 2% of GDP in two years and completely eliminate the primary deficit, which at the end of 2013 was 2.8% of GDP.

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