The Sala IV has rejected the tax reform bill that was approved in the first instance in Congress, citing procedure errors in the legislative treatment.
The court decision means, in principle, that the bill that the government calls the "Solidarity Tax" will be returned for consideration by congressional representatives and it will therefore be at least another four months before it can be approved.
The recently approved tax reform seriously affects operating conditions for this market.
The recently approved tax reform prevents vehicles which are more than 7 years old from being imported and establishes a tax known as First Registration of Vehicles (Iprima in Spanish), representing a rate calculated on the estimated market price and not the import price.
As part of the tax package currently under review in Costa Rica, industry representatives and the Minister of Finance have agreed to implement the Value Added Tax gradually over three years.
A statement by the National Chamber of Tourism reads:
According to the Costa Rican Chamber of Commerce goods and services and therefore consumers will be the biggest losers if the tax reform is approved.
A press release from the Chamber of Commerce of Costa Rica reads:
Goods and services in our country, and therefore consumers, will be the biggest losers if the Solidarity Tax Bill is approved, due to fixation of new value-added tax, which will increase prices.
After being approved by the Special Commission, the bill has moved on to the legislative plenary discussion.
The project aims to reduce the fiscal deficit, which currently stands at 3.2% of gross domestic product, and could be approved by the plenary of the Legislative Assembly before the end of the year.
"The initiative introduces a national law on value added tax (VAT) as agreed by the Executive and the Citizen Action Party (PAC) with a 14% tax on the sale of goods and services and which would replace the current sales tax of 13%.
And apparently for bureaucracies in general, including those of international organizations; an "expert" from the Inter-American Development Bank is supporting tax reform in Costa Rica.
Although officially the IDB "does not advocate a tax burden or specific tax policy," one of its officials warmly supports the project to increase the tax burden to support the Costa Rican economy, to the point of suggesting that the tax burden be similar to Argentina’s.
Costa Rican industrialists believe the VAT exemption proposed by the Executive will be ineffective.
A press release from the Costa Rica Chamber of Industry states:
Surprised. This was the reaction of industrialists on learning of the filing of an amendment to the Solidarity Tax Act Project by the Ministry of the Economy and Ministry of Finance, relating to value added tax.
Unions and business associations are insisting that the economy will be damaged if the proposed tax reform is approved by the Executive.
The private sector is objecting to the negative impact that the reform will have on the national productive apparatus and consumers. Unions for their part say the new tax (Value Added Tax, VAT) will affect the finances of Costa Rican families.
In Costa Rica, pressure from employers to maintain tax exemptions in free zones is increasing.
According to an article in Elfinancierocr.com at a meeting of a group of businessmen which included the main force behind the increase in taxes in the free zones, the former presidential candidate Otton Solis, there were no positive results, and the same outcome was seen at a meeting held with the full bench of the Citizen Action Party, of which Solis is the leader.
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.
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.
In Costa Rica, the Association of Free Zones and Investment promoter CINDE are lobbying against the imposition of new taxes on businesses.
The proposed measure, now under a fast track approval system in the Legislature, include a tax on dividends for those companies who establish themselves in in the zone after 2015, plus requirement to pay municipal taxes.
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.
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