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.
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.
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.
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.
The new Solís administration plans to establish the Value Added Tax and demand proof of tax payment for procedures in public institutions and on application for bank loans.
The tax reform being prepared includes a bill to reform income tax. This is part of a project by the Ministry of Finance which includes 55 specific actions among which are changes in the area of income, reducing government spending and control of state borrowing.
In Costa Rica the looming tax reform bill involves a burden on GDP of double the amount contemplated in the fiscal packages that were not passed in the last 10 years.
Edgar Ayales, Minister of Finance projected that the new tax reform to be introduced by the government needs to generate between 3% and 4% of the country's production."This year's production is estimated at about $50 billion, therefore the percentage amounts to between $1.5 billion and $2 billion," reported Nacion.com.
The 10% increase in revenues will offset the 9.5% increase in central government spending, leaving the fiscal deficit at 3.5% of GDP, slightly below the October 2012 cumulative.
A statement from the Ministry of Finance reads:
Government deficit to October is slightly lower than in the same period last year
• Net domestic financing of the government (including recourse to external debt amortization) was 4.2% of GDP, down from 4.3% in the same period of 2011
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.