Taxes Going Up at the Worst Time

Despite a severe economic crisis, Costa Rican authorities have approved the imposition of a 1% VAT on several foodstuffs in the basic food basket, and 4% on certain tourist activities and construction services.

Thursday, July 2, 2020

Before the emergence of the pandemic, the Costa Rican economy was already in a difficult state, and the impact of the covid-19 outbreak ended up hitting it in the worst way, which is evident in the performance of productive activity.

According to official figures, during April 2020 the IMAE registered a -9.3% year-on-year variation, which is largely explained by the drop in activity in the food and lodging services sector, due to the restrictions decreed by the spread of the virus.

This drop in economic activity coincided with a rise in unemployment levels. According to the National Institute of Statistics and Censuses (INEC), during February, March and April 2020 the national unemployment rate rose to 15.7%, which is 4.4% higher than that reported for the same period in 2019.

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The taxes have arrived at the worst moment, since with the application of the Law for the Strengthening of Public Finances, a series of products of the basic basket began to be taxed and for another group a moratorium was established, which expired on June 30, 2020.

With the expiration of the term, since July 1 they began to charge 1% to products of the basic basket such as bread, tortillas, meat, sausages, rice, cereals, fruits, vegetables, dairy products and others.

For the Costa Rican deputy of the New Republic block, Harllan Hoepelman, the collection of VAT must be deferred for one year. The legislator explained to that "... the unemployment rate is growing and that is why we are calling on all political factions and colors to approve the project (which was presented to the Assembly)," which establishes a moratorium on the application of the tax.

Tourism is another sector that has been affected by the entry into force of the charges. Carla Coghi, managing partner of Deloitte, explained that another of the payments that began to be demanded is that of tourism services.

According to Coghi, canopy, horseback riding or similar services will have to pay an additional 4%. In the case of lodging services that already have the 13% VAT charge, they should no longer be required to make additional payments.

Construction is not exempt from the charges. Coghi explained that "... the construction services that go to 4% are those services such as gluing of ceramics, earthworks, and other construction services provided to projects that are already underway."

The specialist said that in the case of new projects that were presented and managed after September 30, 2019, they should be charged the normal 13%.

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