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.
Although Costa Rica and Nicaragua approved fiscal reforms this year, it is predicted that the expected results in terms of tax collection will not be achieved.
The document "Centroamérica: análisis sintético, por país, del desempeño de la recaudación tributaria en 2019", prepared by the Instituto Centroamericano de Estudios Fiscales (Icefi), explains that, in the case of Costa Rica and Nicaragua, the expected results in terms of improved collection are still in doubt.
In Costa Rica, the central government's financial deficit at the fifth month of the year maintained its upward trend as a result of higher interest expenditure and stood at 2.6% of GDP.
While the behavior of the financial deficit is largely due to interest payments, the increase in capital spending also shows significant variation, which translates into better infrastructure conditions needed to facilitate the mobility of goods and people, explains a newsletter from the Costa Rican Ministry of Finance.
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). However, they affirm that several adjustments should be made to public spending to achieve long-term solutions.
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:
Transfer pricing and double taxation are two of the topics covered in three bills to reform regulations which the Ministry of Finance has put to public consultation.
One of the proposals is the bill on "Informational declaration of transfer pricing".Crhoy.com explains that"...This empowers the tax authorities to check that transactions between related parties are valued at prices similar to those that would be agreed between independent parties in comparable transactions. "
A A bill presented in Costa Rica aims to improve tax controls by forcing merchants to accept payments with credit and debit cards.
The bill introduced in the Legislature by the Ministry of Finance, entitled "An Act to improve the fight against fiscal fraud" includes other initiatives such as the imposition of a sales tax on property rentals of less than one month duration.
If many large companies are granted tax exemptions for long periods of time, why not give the same exemptions to SMEs?
The analysis of the topic in an article in Laprensa.hn on the high rate of informality in microenterprises in Honduras, can be extrapolated to all Central American countries.
Honduras and Nicaragua has highest tax rates in CA
The National Consumer Rights Commission of Honduras
report states that Belize, Honduras and Nicaragua have highest tax rates in CA: 20.7%, 17.8% and 17.7% respectively.
Citizens generally ask for and even demand massive social spending without much thought about its implications, says Ocliver A. Rojas Gómez in his blog on the Fuerza Verde web site.
The market can't carry out all economic functions, he says, and so some of the responsibility has to be lodged with the State as a provider of social services.
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