Although Costa Rica's fiscal reform has already been approved, the IMF proposes raising some taxes as part of an "additional adjustment" to reduce debt and ease financial pressure in the short term.
"... “We are negatively surprised by the simplistic position of the International Monetary Fund that in the absence of money, taxes should be raised, we consider those words unacceptable, because it has been demonstrated in this country that a large part of the deficit is because of the inefficient use of public funds and an issue of state efficiency that does not allow people to become businessmen," said UCCAEP President Gonzalo Delgado."
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.
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).
Leaving out VAT on private education and the basic basket, the substitute text of the bill to Strengthen Public Finances was approved in the legislative committee.
The controversial substitute text of the Bill Strengthening Public Finance that has already passed the first filter, and may now be analyzed by the Plenary of the Assembly, left out two of the taxes that the Alvarado administration intended to implement in its plan: VAT of 1% and 2% on products in the basic basket and 2% on private education services.
The high level of financing and the economic slowdown explain the increase in the fiscal deficit of the central government, which at the end of July reached 3.3% of GDP, the highest in the last six years.
The decrease in tax revenues, due to a slowdown in economic activity, added to the high level of government debt, explained the strong rebound in the fiscal deficit in the first half of the year.Of the total deficit, about two thirds correspond to interest.
The proposal to increase the tax on interest on financial investments in Costa Rica could eventually make credit more expensive for both the private sector and the government.
In the view of the National Securities Exchange (BNV) it is worrisome that initiatives such as an increase in tax on income from financial investments are being discussed without knowing in detail and clearly the impact that something like this could have on the stock market and the country's financial activities.
The Costa Rican Congress has approved a fast track bill that would transform sales tax into a VAT of 13% and establish a 4% rate on the purchase of packaging, wrapping and raw materials, among other things.
The bill that could be approved by the Legislative Assembly also includes "... taxes on books in all their formats, air tickets, purchase of packaging and raw materials, as well as equipment and machinery (except if there is an express exoneration) and services for agricultural and agroindustrial production."
The good functioning of the institution in charge of collecting taxes is vital for ensuring economic development, as it means that honest companies who comply with their fiscal obligations are not at a disadvantage to those who don't.
EDITORIAL
In Costa Rica, better administrative management has made possible better income tax collection figures than those foreseen with simple tax increases.
In 2016 the size of the governments in the Central American countries grew very little, the tax burden reached 14.3%, and the average fiscal deficit was about 2.8% of GDP.
From the department of Fiscal Outlook for Central America, from the report "Macrofiscal Profiles: 7th Edition", by the Central American Institute for Fiscal Studies (Icefi):
Without setting a date for a new proposal, the Executive has asked Congress to return the controversial bill.
After receivingcriticism because of the absence of reforms in the control and transparency of public expenditure, the Executive has requested the withdrawal from discussion in Congress of the tax reform bill, which aimed, among other things, to raise tax on the distribution of cement, mining and fuels.
The tax reforms proposed by the Morales administration could include a new tax on telephony and increases in taxes on cement, hydropower and alcoholic beverages.
The amounts and characteristics of the taxes are still unknown, but at a meeting between representatives of Congress and the Executive Branch details were given on the productive activities that are included in the government proposal.
From 2014 to 2015 the size of central governments remained constant at an average 18.5% of gross domestic product (GDP).
From the introduction of the report: "Macrofiscal Profiles: 6th Edition" by the Central American Institute for Fiscal Studies (Icefi):
2015 proved to be a period of low tax advance for the Central American region. On average, the size of central governments remained constant compared to 2014, at 18.5% of gross domestic product (GDP). However, not all nations maintained this trend in the same way. While the governments of Nicaragua, Costa Rica and El Salvador, some of the largest fiscally in the region, continued to increase their participation in the economy, reporting increases of 1.5, 0.7 and 0.7% of GDP, respectively, the Government of Guatemala - one of the smallest in the world became even smaller, being reduced by 1.2% of GDP. For its part, the Government of Honduras reported a small decrease of 0.2% of GDP, fully converged with its policy of fiscal austerity, while that of Panama had a transient contraction of 1.4%, reflecting a reorganization established by the new administration and that, according to the plans for 2016, will be reversed in full.
As in old fashioned patriarchal homes, if there must be suffering, the first to suffer are the stepchildren, and only afterwards, if necessary, the legitimate children.
EDITORIAL
The announcement by the Solis administration that it has a plan B in case it does not manage to get legislative approval for the proposed tax increases designed to address the serious and growing fiscal deficit, highlights the existence in Costa Rica of first class citizens and second class citizens.
Completing reform of the tax authority, reducing smuggling and reforming the Tax Code are the basis of the proposal by the Association for Research and Social Studies.
From a statement issued by the Association for Research and Social Studies (ASIES):
Given the delicate situation of uncertainty and lack of direction found in Guatemala, ASIES believes it is part of its responsibility as a research center, to provide information to address the country's most critical problems. Therefore, in a press conference, the Board presented proposals for urgent action on economic, political, justice, social and environmental issues.
After the dollarization in 2001 "... fiscal policy became the only tool the state could use to promote economic growth and improve living conditions for the population."
From a statement issued by the Central Institute for Fiscal Studies (Icefi):
Icefi reiterates the need for comprehensive tax reform
El Salvador, Tuesday, February 16, 2016
El Salvador - The Central American Institute for Fiscal Studies (Icefi), believes that El Salvador must seek political agreements that will pave the way for a comprehensive tax reform that addresses not only the solvency of the pension system, but the challenges in social welfare and the search for sustainable economic growth in the medium and long term.