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Costa Rica got more expensive this morning, July 1

New rates of the Value Added Tax (VAT)on intems in the basic food basket and construction, among others; and income tax take effect today

(QCOSTARICA) Starting from today, July 1, 2020, articles of the basic basket and agricultural supplies will have a 1% Value Added Tax (VAT), and other changes that apply to some construction and tourism services, and an increase of one percentage point in the income tax for some incomes and surpluses.

In the case of the basic basket, the change applies to 195 products.

Some examples of goods that make up the basic basket are: white rice, beans, fresh liquid milk, some beef, pork and chicken, sausages, tuna in oil, some fruits such as avocado, limes, some vegetables and greens like sweet potatoes, onions, tomatoes, potatoes and chayote, and hygiene items, such as toilet paper. The complete list here.

The calculation of the tax on these basic basket products is complicated, in that in entails tax and credits on producers, their registration, and distributors and marketers, which costs end up passed on to the consumer.

Tourist services tax

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Another of the charges will be that of tourist services. This does not touch the entire sector as such.

For example, renting a hotel room already has a 13% VAT, so no changes there. But if you hire services such as a tour, canopy, or a horse ride, for example, an 4% valued added tax applies.

VAT on construction services

All construction services had were exempted from paying the VAT must now start paying 4%. This means that any work that is still in process will be susceptible to this new cost, and that will necessarily cause the developer to have to decide whether to lower their profit margin or charge the client more.

Anyone who provides services related to the sector must now pay the 4% value added tax.

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The argument from the construction sector that the VAT should not apply to them on July 1, as it would make the projects more expensive and generate more unemployment and informality.

However, weeks ago the new finance minister Elián Villegas was emphatic that VAT on construction would be charged, although the government was willing to give up on tourism and the basic basket, which has not yet occurred.

A bill, presented by the government on June 11, to postpone the tax to June 30, 2021, is still under discussion in the Legislative Assembly.


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