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Government Decides To Propose A 13% VAT

But the government does not rule out that the tax be 15%, it depends on the consensus of other parties

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The Chief of Staff, Sergio Alfaro and Helio Fallas, Minister of Finance, in a discussion with legislators over the government’s proposal of a 13% value added tax. (Mayela López, La Nacion)

Being more feasible to obtain the 29 votes needed in Congress, the Government decided to propose transforming the current 13% sales tax to a Impuesto Sobre el Valor Agregado (IVA)- Value Added Tax (VAT) – instead of the 15% it had been promoting.

The Vice Ministro de la Presidencia (Deputy Chief of Staff), Luis Paulino Mora, explained the draft bill, Ley de Fortalecimiento de las Finanzas Pública, that the Executive Power will put forth before Legislators.

The VAT would include taxing items such as legal fees, streaming television services, rentals and computer services, among others, that are not taxed today under the sales tax policy.

The Government is urging the approval of its proposal as it faces an accelerate deterioration of the State’s finances. 2016 closed with a 5.2% deficit in the Gross Domestic Product (GDP) and the Central Bank (BCCR) estimated this year would increase to 5.9%.

However, after a review last July, the BCCR projection was revised to a 6.1% fiscal deficit for this year and 6.8% for 2018.

Molina said the VAT proposal has the support of legislator of the Liberación Nacional (PLN) and would expect support from the Acción Ciudadana (PAC), the ruling party.

Of the six presidential candidates, one of which will form the next government, only three, Antonio Álvarez (PLN), Rodolfo Piza (PUSC) and Edgardo Araya (FA), fully support the government’s proposal.

For his part, PAC candidate, Carlos Alvarado, said he leans more to a 15% VAT tax and would have to analyze the impact of the lower tax would have on tax revenues before giving his support.

The Libertarian Otto Guevara is not in favor of the VAT. The perennial presidential candidate said he is more in favor of selling off government assets, such as the State bank, Banco de Costa Rica and the State insurer, the Instituto Nacional de Seguros (INS) and reduce public spending and reduce bailing out of public entities.