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.
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.
Since October 1, Costa Rican producers and suppliers in the agricultural and fishing sector have a special regime for declaring and paying VAT, which provides that coffee producers, sugarcane and beekeepers will make an annual declaration.
The new Special Agricultural Regime (REA) does not change fiscal obligations, but it allows them to be adapted to the particularities of production processes, so as to facilitate compliance, informed the authorities.
Until April 2 will be in public consultation in Costa Rica the regulations of the Value Added Tax Law, which incorporates the changes of the first proposal disclosed on January 29.
This is the second consultation carried out, since on January 29, 2019, the proposal for "Regulation of Title I of Law No. 9635 of December 3, 2018, denominated "Value Added Tax Law" (VAT) was made available to the public.
Regulations of the Value Added Tax Law in Costa Rica are in public consultation until February 4.
From the Ministry of Finance press release:
January 29, 2019. With the aim of achieving the greatest possible citizen participation in the implementation process of the Law to Strengthen Public Finances, from today, Tuesday, January 29 and until next Monday, February 4, the Ministry of Finance will have available to the public the proposed "Regulation of Title 1 of Law No. 9635 of December 3, 2018, called "Value Added Tax Law" (VAT).
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.
Food companies in Costa Rica say that eliminating VAT from the basic basket in the tax reform proposal would create an incentive for imported foods, over and above local production.
The Costa Rican Chamber of the Food Industry (Cacia) reacted to the decision of the deputies to exempt VAT of 1% and 2% on the products of the basic basket in the Bill of Strengthening of Public Finances, which is being discussed in the Assembly.
In Costa Rica, the new proposal from the Solis administration's imposes tax on a greater amount of goods and services, such as air tickets, books, packaging and bottling, but with differentiated rates.
As the government's initial idea to convert the sales tax into a value-added tax and raise it from 13% to 15% did not prosper, the Ministry of Finance decided to expand the range of goods and services to be taxed, in order to compensate part of the funds that could not be raised from raising the rate from 13% to 15%.
Among the new features are VAT refunds to those who pay for private medical practices with cards and the establishment of a new fiscal year, from January 1 to December 31.
From a statement issued by the Ministry of Finance:
Bill on value added tax (VAT):
New Features
- This project establishes a value added tax (VAT) levied on sales of goods and provision of services in Costa Rica.
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 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.
The Vice President and the Minister of Finance have insisted that the Assembly adopt a draft law to establish global income and convert the sales tax into value added tax.
This December is the date set for the plan to convert to sales tax into value added tax (VAT) and for the first quarter of 2015, the bill on global income. Also in 2015 a draft law will be submitted on the Framework Law on Exemptions.
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.
On top of the adoption of VAT, global migration tax, and global income tax already announced in previous plans, there is now a containment cost to be added through adjustments to the State payroll.
An article in Elfinancierocr.com reports that "The Ministry of Finance today released a discussion agenda which will later have to be submitted to the Legislative Assembly in the form of a draft tax reform which will, between cost savings and new revenue, generate 3.5 % of Gross Domestic Product (GDP) in five years. With this relief to public finances, the fiscal deficit would grow at rates that are more manageable than the 5% of the projected production for 2013. "