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Correction: The previous report placed the withholding tax at 1.75%.

COSTA RICA NEWS — Pulperías (corner stores), restaurants, taxis and gasoline stations are some of the businesses that will be exempt from the tax withholding on payments  by customers with credit and debit cards.

Last month, Dirección General de Tributación (DGT) – Tax Department – announced the withholding would be 2% starting October 1 on all retail purchases made with plastic. However, complaints by business sectors such as gasoline retailers and taxi drivers, caused the Ministerio de Hacienda (Finance Ministry or Treasury) to reconsider.

On Monday, the DGT said the withholding will begin on November 1, 2014, and only be 1.77% that will be applied as advance on business income tax.

With the change, all businesses filing a tax return under the Régimen Simplificado de Tributación (Simplified Tax Regime) and public services with regulated prices,  such as taxi and bus fares and fuel, will not be subject to the withholding.

Deputy minister of Finance, Fernando Rodríguez, explained that businesses not subject to the withholding includes corner stores (known in Costa Rica as pulperías), restaurants and small retailers such as arts and crafts, furniture, photo studios, florists and  fish stores.

According to Hacienda, the withholding will not have an impact on businesses.  The mechanism is that, at the end of the year, the withheld amounts will be applied as a credit towards the income tax burden of the business.

The objective of the DGT is to improve income tax collection.