Tax Reform: First Step

Alvarado administration celebrates the approval of the tax reform in Costa Rica by announcing a series of initiatives that include, among other things, a public employment reform Project.

Tuesday, December 4, 2018

After a year of proceedings in Congress and after having been reviewed by a Constitutional Chamber, the country's Assembly finally approved file 20.580. By endorsing this project, the government intends to strengthen its public finances through changes made to the taxation system.

See "Less Uncertainty, Better Outlook" and "A Fiscal Short Break for Costa Rica"

One of the most important reforms included in the approved project is the transformation of the general sales tax into the value added tax (VAT), which will be taxed with 13% of several services that are currently exempt.

Regarding the approval of the reform, Finance Minister, Rocío Aguilar, said to that this "... generates confidence and internationally is very important because we had seen a change the entire previous week regarding the bonds of Costa Rica, as they rebounded so significantly in the international market, we had accumulated yesterday more than 120 percentage points in a short period without approving the reform, we think the international market has received very positive news and this I would add the rating of Costa Rica, what could be the result if the time of rating was coming and we had not reached that process.” See article "Treasury: Tax Plan Approval to Increase Confidence in International Markets."

Read full article (In Spanish).

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More on this topic

Fiscal Amnesty in Costa Rica: How will it be?

November 2018

The tax reform law that would be approved in second debate in the coming weeks, involves the exoneration of arrears and penalties for taxpayers who pay their debts in the first three months after the publication of the law.

The proposed measure consists of exonerating 100% of the interest on arrears and up to 80% of the penalty to taxpayers who pay in the first month after the Law is published in the official newspaper La Gaceta.

A Fiscal Short Break for Costa Rica

November 2018

After a long and tense wait, the Constitutional Chamber granted the approval for the Law to Strengthen Public Finances to be voted in Congress with a simple majority.

The Court's judgment prepares the way for the law to advance more quickly in the coming weeks in the Congress.

Costa Rica as Seen by the OECD

June 2016

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:

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.

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.

Read full report "Visión General Costa Rica 2016" and "OECD Economic Surveys: Costa Rica 2016"

¿Will There Be A Light At the End of the Fiscal Reform Tunnel in Costa Rica?

April 2015

Experts warn that the draft law which aims to raise income tax and convert sales tax into value added tax might not be approved for two years.

The lack of consensus between the Ministry of Finance and the President of the Republic, Luis Guillermo Solis, is sending mixed signals on some aspects of the tax reform.

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