By submitting to the Costa Rican Legislative Assembly a new text of the dual global income bill, the Alvarado administration intends to guarantee the tax exemptions that companies operating in the free trade zone regime already benefit from.
The dual global income bill that was sent last January 22 to the Assembly created confusion among the deputies.
The new tax reform proposal presented by the Ministry of Finance of Costa Rica includes the creation of a global income system to impose and collect a tax on the profits of companies and individuals.
Taxing all of the profits of natural and legal persons, including those currently paid separately by the identity code income method, is the principal new feature of the new tax reform plan presented by the Ministry of Finance.
The amendment to the Tax Code, partially approved by Congress, omits the concept of "global income", and establishes "territorial income".
Latribuna.hn reports that "...The Bill for a new Tax Code was drafted by the government, employers and a sector in the social economy, and during the dissemination it was said that the change to "Territorial Income represents a setback in the fight against capital flight."
Raising VAT from 12% to 15% and lowering income tax from 35% to 30% are part of the reforms that the Executive Branch is preparing to present to Congress.
Preliminary ideas being prepared by President Morales and a group of advisers also include incorporating the concept of world income.Although a formal document has not yet been submitted, the Executive has already started to give details of the proposal to members of Congress.
The Government is once again bringing to the table the concept of global income, to force tax residents in the country to declare and pay taxes on profits earned abroad.
The Ministry of Finance has announced that"... they are working on a substitute text to a reform of income tax, which would mean a profound change to the initiative which is in Congress."This proposal is for tax any income generated from commercial activities outside of Costa Rica, by those tax residents who stay at least 183 days a year in the country.
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
A bill that the government plans to introduce in the Assembly before the end of year includes transforming the sales tax and into a value added tax and gradually raising the rate from 13% to 15%.
This increase should be available within two years in order to "... stabilize the size of the gap between government debt and gross domestic product (GDP) from 2019 and safeguard macroeconomic stability. "
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 asymmetry of investment flows makes the application of the concept of world income inevitably generates more revenue to the states of powerful economies than those of small ones.
In his opinion piece in Elfinancierocr.com, Manrique Blen points to the difficulties that countries with small economies face when they sign double taxation treaties, as, depending on the characteristics of the signed agreements, they can stop receiving tax revenues that they could have received had they not joined the treaty.
A law has been approved that repeals articles 2 and 3 of Act 120 of 2013 and restores the effect of Article 694 of the Tax Code relating to the principle of taxation of the income.
From a statement by the National Assembly:
With 45 votes in favor, 2 against and 0 abstentions, the plenary of the National Assembly approved on its third reading Bill 694, which repeals Articles 2 and 3 of Act 120 of 2013 and restores the effect of Article 694 of the Tax Code regarding the principle of taxation of income.