QCOSTARICA – A casado without meat or eggs would be the meal for many if the government’s new tax reform is passed as presented to the Legislative Assembly.
The casado is a traditional Costa Rican dish of rice, beans, platano, egg and a piece of meat – steak, chicken or pork. But, under the new tax plan, the piece of meat or egg would be a luxury.
The tax reform introduces a number of changes to the present system, like the move from the current 13% sales tax on goods to a value added tax (VAT) on goods and services. The proposal also raises the tax from 13% to 14% in the first year of the new tax and 15% starting on the second.
What this change alone mans is that many of the goods and services commonly used everyday will be taxed, including a number of items in the “canasta basica” (basic basket). In real terms, it means that a family spending ¢100,000 colones on their shopping would have to pay ¢115,000 for the same purchase.
Affecting foreigners are items like the purchase of real estate, legal and accounting services, even medical bills (unless you pay with a credit or debit card).
The plan also calls for a capital gains tax and a tax on money entering the country.
A hair cut will be taxed. Car repairs will be taxed. Personal care products such as toilet paper, toothpaste and a toothbrush will be taxed. Household cleaners such as soap and detergents will be taxed. The list goes on. To try to offset the effect the pocketbook, vegetables, rice, bread, milk, tortillas, and fruits will not be taxed.
A tax on monthly rentals over ¢403,500 colones (about US$765 dollars) is part of the new tax plan. There are changes to the income tax that will affect just about every worker in the country, 97% is the estimate. There are tax increases, up to double, for vehicle and real estate transfers.
The government assures us there is not other way out for the country, to resolve the fiscal deficit, but to introduce tax reforms.
The proposed plan does not have strong support in the legislature. Seven of the nine parties the Liberación Nacional (PLN), Unidad Social Cristiana (PUSC), Movimiento Libertario (ML), Renovación Costarricense, Restauración Nacional, Accesibilidad Sin Exclusión (PASE) and Alianza Democrática Cristiana parties, demand the government cut public spending before starting the debate on the tax reforms.
Only the ruling party, the Partido Acción Ciudadana (PAC) and the Frente Amplio (FA) support the changes. However, the FA is opposed to the VAT raised from 13% to 15%, accepted Gerardo Vargas, his chief of legislative block.
The government also lacks the support of the private sector, who want to see a more efficient use of public resources and spending.
The president of the Unión Costarricense de Cámaras y Asociaciones del Sector Empresarial Privado (Uccaep) summed it up this way to La Nacion, “in the country there is confusion with the tax issue, because there is only talk about taxes. The discussion should be comprehensive and incorporate the issue of public spending.”
Defending the government’s action to cut spending, the Minister of Finance, Helio Fallas, said one of the efforts made in that area is keeping public sector salary increases for the second half of the year to only 0.08% or capping higher pension payments.