As of January 1, 2021, owners of homes whose construction value exceeds the equivalent of $217,000 will have to pay the tax known as the "luxury home" tax.
The modification of the minimum amount was communicated through the executive decree that was published on December 22 in the newspaper La Gaceta. With these changes, between 2019 and 2020 the minimum value of the properties that are subject to this tax was increased from $213,751 to $217,015.
In this scenario of economic crisis, falling tax revenues and the need to finance recovery programs, in Guatemala and Costa Rica it is already proposed to increase current taxes and create new ones.
Guatemalan authorities are already beginning to discuss the fiscal policy they will apply in 2021, when the economy will have to face the effects of the economic crisis generated by the covid-19 outbreak.
In order to access the $1.75 billion credit requested from the IMF, the Costa Rican government proposes to tax financial transactions, increase the tax on the profits of companies and individuals, and increase the tax on real estate.
On the afternoon of September 17, and in the context of a severe economic crisis that had been going on since before the beginning of the pandemic, the Alvarado administration presented the plan with which it intends to mitigate the fiscal impact of the Covid-19 crisis, a proposal to negotiate an agreement with the International Monetary Fund (IMF) to obtain a credit of $1.75 billion.
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.
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).
"Public debt in terms of simple average for the Central American region will continue growing, reaching 43.1% of GDP in 2018, after having registered 42.5% in 2017."
The Central American Institute of Fiscal Studies (Icefi) estimates that for the current year the size of public expenditure of the Central Government in relation to the respective Gross Domestic Product of each country will be 21.4% in Costa Rica, 20.4% in El Salvador, 20% in Honduras, 18.4% in Nicaragua, 17.6% in Panama and 12.1% in Guatemala.
At the end of the first quarter of this year, the financial deficit increased to 1.5% of GDP, up from the 1.3% reported in the same period in 2017, accompanied by a slowdown in tax revenues.
According to the Ministry of Finance "...The fiscal results at the end of the first quarter of March show, once again, the need to have a structural reform that allows increasing revenues and slowing down of growth in public spending, an objective sought by the Public Finance Strengthening Project."
In one of the regions that receives the least amount of taxes in the world, the tax burden remained relatively stable in 2017.
From the section Fiscal Outlook for Central America, from the report "Macro-fiscal Profiles: 9th edition", by the Central American Institute of Fiscal Studies (Icefi):
In 2017, the fiscal trajectory of countries in the region remained relatively constant with respect to what was observed in 2016.The following are highlighted as policy orientations: a) lack of political agreements, which transformed into a real impossibility of increasing tax revenues through tax reforms or strengthening the administrative capacity of tax administrations, and b) implementation of austerity programs, which in several countries had a greater impact on capital expenditures, in order to avoid an increase in the fiscal deficit and public sector debt.
On average, companies in the region pay 45.8% tax on profits, while companies in OECD countries pay 41%.
From the study Evolution of the fiscal situation in Central America, by the Federation of Chambers of Commerce of the Central American Isthmus (FECAMCO):
FECAMCO has carried out a study with the objective of showing the fiscal situation in Central American countries and raising awareness in governments about the efficient use of taxes that are collected from the payment of citizens to guarantee solvency of the states.
The tax burden grew from 13.4% in 2013 to 14% in 2016, both due to the delayed effect of the tax reforms in Honduras and Nicaragua, as well as better management on the part of tax entities in Guatemala and Panama.
From the Regional Economic Report (IER) 2016-2017: Opportunities and challenges for Central America, by the SIECA:
Under study in the Legislature are 26 bills involving new taxes, increases of some existing ones and redistribution of others.
An analysis piece by Nacion.com notes that the Legislative Assembly is currently considering 26 bills introduced during the current administration which in some way involve the issue of taxes."...Of the total projects, 50% are attempts to raise them or create a new type of tax or fees. "
According to the ICEFI, "tax incentive policies seem to be a lost opportunity because of permanent tax expenses and the lack of tangible social benefits."
From a statement issued by the ICEFI:
Within the framework of the international meeting on Tax Justice and Transnational Fraud, held in Costa Rica, a study was presented on October 20 entitled 'The effectiveness of tax incentives for investment in Central America' in which an analysis was undertaken of the Central American experience in investment attraction through tax incentives.
The average tax burden for the region is 13.4% of GDP, while the average public expenditure increased from 18.7% in 2013 to 19.2% at the end of 2014.
From the Introduction of the report Macrofiscal profiles in Central America, from Instituto Centroamericano de Estudios Fiscales (Icefi):
The fiscal situation has worsened in Central America in recent months, mainly due to a structural lack of sufficient resources to meet the needs of Central Americans and realize many of the commitments made by governments.
The business sector of Costa Rica agrees with the content of the draft law proposed by the executive branch to combat tax evasion, but points to gaps in the text.
The lack of "... clear measures on how to combat informality" is one of the shortcomings of the initiative, according to Alan Saborio, coordinator of the Tax Commission of the Costa Rican Union of Chambers and Associations of Private Enterprise (Uccaep).