The mere name of the bill approved by Congress "An Act to Discourage Entry of Capital from Abroad" reveals how dangerous this regulation could be for the Costa Rican business climate.
An article in Nacion.com reports that "...This bill was submitted to Congress a year ago, promoted by the Government, after the central bank detected a wave of speculative capital attempting to take advantage of interest rates in the country and then take it abroad."
Due to the government’s need to increase tax revenue in Costa Rica several types of meat and fruit will incur sales tax of 13% from Monday .
Among the types of products that will be taxed from now on with 13% sales tax are beef and pork loins, beef tenderloin and pork t-bone, Delmonico, sirloin, salmon, rice paella, risotto, shrimp, lobster, oysters, kiwi, plums, prunes, cherries and peaches, reports Nacion.com.
In light of the failure of the first draft of the tax reform, the Government has announced more taxes, the end of exemptions on luxury goods and tax on remitted abroad.
After the defeat of the so-called 'Solidarity Tax Act' in the country's Supreme Court, the Government has been forced to re-do their fiscal and tax plans and launch a new legal package in Parliament.
Laura Chinchilla, Costa Rica's president, has defended the political pact that will allow the approval of a tax package that includes tax increases in the zones.
The president defended her new tax reform plan despite strong opposition from the Ministry of Foreign Trade.
Anabel González, Minister of Foreign Trade, said these measures could affect the attraction of foreign investment into the country.
The political agreement reached between President Chinchilla and the opposing party Acción Ciudadana (Citizens Action) may ensure the speedy adoption of the tax package.
Elfinancierocr.com published an instructive analysis of the likely impact of the tax plan promoted by the government and currently under consideration in the Costa Rican Legislative Assembly, where it has been give a "fast track" status.
If the new tax reform bill negotiated by the Government with the Citizen Action Party is approved the tax would increase by 50%.
The new project introduced in Congress includes a 'luxury car' tax that would be charged along with the ‘marchamo’ road tax.
"The ‘Solidarity’ bill also includes a ten percentage points rise on the selective consumption tax applied when importing a car, and 0.5 points on the tax for transfer of vehicles", reported Nacion.com
The Executive and Ministry of Commerce are clashing over the collection of taxes from 2015 from companies in free zones or industrial parks, included in the tax reform bill.
The new regulations are included in the proposed fiscal reform presented by the government to the Legislative Assembly.
President Laura Chinchilla, was emphatic on the need to approve the fiscal plan in Congress,” ‘so that the country does not go straight into a highly volatile economic situation’.
The items to be introduced are: global income, world income, and municipal taxation on dividends distributed to companies operating in free zones.
The Chinchilla administration has agreed to make changes to its tax package in order to gain the support of the main opposition party for approval.
Among the changes to be made to the project and sent to the National Assembly are the introduction of global income, world income, and municipal taxation on dividends distributed to companies operating in the regime of protected zones.
An annual tax of $312 will be created for companies, branches or representatives of foreign corporations, limited liability companies who are in active business.
The tax targets active corporations which undertake some type of commercial business. For inactive companies (not engaged in lucrative activities), the tax is $156.44.
"The bill exempts micro and small enterprises registered as such with the Registry of the Ministry of Economy, Trade and Industry, and who are registered as taxpayers with the Directorate General of Taxation.
The state loses about $ 2.202 million in taxes, equivalent to 5.8% of the GDP.
Weekly publication El Financiero analyzed the main reasons why taxpayers are failing to pay taxes, stressing the evasion of the sales and income taxes.
According to the study, fraud in these 2 types of taxes implies $ 1.988 million per year, about 5.2% of GDP, money which does not go to the National Treasury.
Based on prior evidence, the much needed fiscal reform in Costa Rica may take a year and a half to become a reality.
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.