Saturday 10 June 2023

Every colon counts for the 1.2 million Ticos hit by the VAT

This difficult situation of squeezing was made even worse for them with the entry of the 1% value added tax on July 1

Paying the bills


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10 June 2023 - At The Banks - Source: BCCR

Paying the bills


(QCOSTARICA) The entry into force of the 1% of the Value Added Tax (VAT) in the basic basket (canasta basica) items, as of this Wednesday, July 1, represents a blow that will not necessarily go unnoticed by an important group of the neediest and low-income population.

Although for the vast majority 1% will represent a few hundred colones at the cash register, for at least 1,200,000 in Costa Rica, whose average expenses are greater than their income, this is not the case. For them, every colon counts.

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According to figures at the end of 2019 from the National Institute of Statistics and Censuses (INEC), there are 628,829 people who lived with a per capita income of less than ¢58,852 colones (US$101) per month, and another 574,000 people who have done with less than ¢85,493 (US$147).

More: The items of the Canasta Basica

The situation with this population is that the average expenses exceed that amount month by month; that is to say, the money is not enough, and they must resort to living on borrowed money, aid, or simply on what fate has in store for them day by day.

The situation lived today by the first two deciles (groups of 10% of the population or some 300,000 households), in the middle of a pandemic, could be currently worse.

This difficult situation of squeezing was made even worse for them with the entry of the VAT, in that a large part of their resources must be used precisely in food, in the precisely priced products of the basic basket.

Keep in mind that those products outside the basic basket already pay 13% VAT.

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According to INEC, the first quintile of the population (20% with fewer resources) has an average income of ¢68,000 colones per person, and at least ¢30,581 must be used in basic food products.

“If your income is ¢200,000 a month, for a person that ¢2,000 (1% VAT) can mean three or four bus passes to get to and from work. We are making life difficult for them significantly. I am not worried about the middle and upper classes because it is not going to make a big difference to them, but it is for the sector that was already in poverty and its panorama has now been made more difficult,” said economist Eli Feinzaig.

The government proposed a bill to suspend this collection for at least one year, while the current crisis period passes; however, the bill has not found sufficient support in the Legislative Assembly, though there are legislators looking for a consensus on the text to allow the suspension of the 1%, although it has already entered into force.

This Wednesday, the Minister of Planning Pilar Garrido came out in defense of the bill, noting that the reduction in income for the State that would mean not collecting VAT should be covered by some other source.

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The collection of the 1% is intended to finance the non-contributory resources of the Caja Costarricense de Seguro Social (CCSS).


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Paying the bills
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