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. Now legislators will be able to vote their approval in the second debate, ending a long period of uncertainty, which led to a significant depreciation of the Colon against the dollar, a rise in interest rates and a general concern about the economic future in the short term.
The business sector welcomes the progress achieved with the tax reform approval in the first debate, but notes that it does not fully solve the financial problems facing the government.
In the debate last Friday, the representatives approved the file number 20.580, known as the tax reform law. The approval was optimistically received by the Costa Rican Union of Chambers and Associations of Private Business Sector (Uccaep).
Entrepreneurs in Costa Rica are warning of the negative impact of not maintaining, in the new law of public finances, the VAT exemption on local purchases of goods and services carried out by free zone companies.
The Association of Free Trade Zone Companies of Costa Rica (Azofras) points out that in the bill to strengthen public finances that is being discussed in the Assembly, motion 302 was not revised, a motion which aims to keep the VAT exemption on the local purchases of goods and services carried out by free zone companies, both to be incorporated into export products and for their operations.Currently the sales tax exemption applies.
The new tax reform proposal presented by the Ministry of Finance of Costa Rica includes the creation of a global income system to impose and collect a tax on the profits of companies and individuals.
Taxing all of the profits of natural and legal persons, including those currently paid separately by the identity code income method, is the principal new feature of the new tax reform plan presented by the Ministry of Finance.
In its comments on the bill on income tax and sales reforms currently under public consultation, a request has been made that financial institutions be subject to a system of global and not published income.
From a statement issued by the Costa Rican Banking Association (ABC):
ABC submitted their comments on the draft amendments to the income and sales taxes
The Ministry of Finance has announced the sending to the Legislative Assembly of a bill which eliminates 220 different tax exemptions.
The bill already has the signature of the president, Luis Guillermo Solis, and besides eliminating 220 tax breaks also establishes penalties for those who enjoy them without a right to do so.
Requests have been made for the clarification of which telecommunications services are to be taxed with VAT, since it is unclear whether it is information services or telecommunications which would be taxed.
Currently telecommunications services are charged sales tax, even though the Costa Rican government aims to close the digital divide. With this new reform proposal, a Value Added Tax (VAT) of 15%, "would be incurred ...
The Institute of Chartered Accountants has stated that projects to reform VAT and income tax will affect the final consumer by making goods and services more expensive.
From a statement issued by the Institute of Chartered Accountants:
The President of the Institute of Chartered Accountants, Ovares Francisco, believes that the new bills to reform the Value Added Tax (VAT) and income tax (ISR), which the Treasury is submitting to public consultation will have a direct impact on consumers.
Public consultation is being given to the draft reform proposed by the Ministry of Finance to the Law of General Sales Tax.
From a statement issued by the Ministry of Finance of Costa Rica:
• Proposal is available to read at www.hacienda.go.cr
The Ministry of Finance today made available to the public, a proposal for draft amendments to the Law on General Sales Tax Act and Income Tax, aiming to open up a space to receive observations and recommendations from the sectors and citizens interested in participating in this process, which is needed to strengthen public finances and achieve a National Agreement for Social Development.
The reform under public consultation includes tax on remittances sent abroad, on the payment or crediting of interest, commissions and other financial expenses by natural or legal persons domiciled in Costa Rica.
From the order by the Ministry of Finance published in La Gaceta:
Amendments to the Regulations on the Law on Income Tax
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.