Tuesday 21 September 2021

Another Try! Government Sends Legislators New Draft Tax Reform

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In an effort to keep alive the reforms to the Plan Fiscal (Tax Reforms), the government of Carlos Alvarado delivered to the legislative caucuses a new substitute text, which includes changes in the articles on the Value Added Tax (VAT), income tax and unemployment benefits for public officials.

Legislators at work

The draft comes after days of intense meetings.

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Among the proposed changes is the increase from ¢430,000 to ¢648,000 colones per month the amount of residential rental income (and rents paid by Pymes) that the 13% VAT tax will be applied; as well an increase from 250 to 280 kilowatt-hours consumption before the tax is payable.

At the same time, a new VAT rate of 1% is included for the transactions of agricultural goods of the basic basket, as well as for items such as wheat, soybeans, sorghum, fruit, corn and palm oil.

The revised draft establishes that taxpayers may deduct from income, as part of their expenses, all the interest they pay for loans with entities of the national financial system or with foreign banks of ‘first order’.

In respect of reforms to public salaries, a phrase is included that establishes that, in no case, the unemployment benefit (of a public official) may exceed eight years. But the rule won’t apply to public officials who currently have a greater benefit based in their collective agreement. Some institutions now pay benefits up to 20 years.

In order to avoid misunderstandings, the Ministerio de Hacienda (Finance) included several clarifications in the chapter on VAT exemptions, for example, the payment of tuition in public universities will not be subject to this tax, nor will the fees for tuition or credits from these institutions of higher education.

Next, see the main changes established in the new draft of the project:

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