Tuesday 31 January 2023

Experts recommend taxing the “Aguinaldo”, President Alvarado rejects the idea

President Carlos Alvarado stressed that this has not been and will not be

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QCOSTARICA – Taxing the “Aguinaldo” – the annual Christmas bonus – is the recommendation made by two experts from the Inter-American Development Bank  (IDB) to Costa Rica’s Comisión de Asuntos Hacendarios (Tax Affairs Committee).

The consultants gave their opinion to the Comisión de Asuntos Hacendarios (Tax Affairs Committee). Photo Aaron Sequeira

The decision is in the hands of the legislators, however, from now on, Shirley Díaz, an independent legislator, who is opposed, said that it would affect the income and quality of life of Costa Ricans in such complicated moments of a pandemic.

The idea of charging income tax on the Aguinaldo was presented by IDB consultants Alberto Barreix and Fernando Velayos during an appearance on the Dual Global Income project, one of the plans on the agenda of the International Monetary Fund (IMF).

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The two IDB experts say the tax would be in accordance with international standards. For his part, Velayos, who made it clear that his positions are not those of the IDB, but his personal appreciations.

“Costa Rica is the only country in the Organization for Economic Cooperation and Development (OECD) that does not have a global income. It is up to you (the legislators) to determine whether or not it is the appropriate time to apply it,” he stressed.

The participation of both experts joins the audiences of different productive sectors to talk about the reform of the global dual tax.

“The Government has never raised and will not propose to affect the Aguinaldo with any tax. Although it is an international standard, this type of approach has never been and will not be in the discussion,” he stressed.

Employers, both private and public, are required to pay all their employees the Aguinaldo, one twelfth of all ordinary and extraordinary wages, accrued by the worker during the twelve months from December 1 of the previous year to November 30 of the current year; the sum of said salaries is divided by twelve.

The Aguinaldo must be paid by December 20 of each year, though many employers pay it in the first half of December.

At this point in the year, people are already thinking about how to invest the Aguinaldo. Photo Jeffrey Zamora.

Tax reform

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The tax reform plan being discussed in the Legislative Assembly does not include taxing the Aguinaldo. President Carlos Alvarado stressed that this has not been and will not be.

The President made it clear on his Twitter account:

“The Government has never raised and will not plan to affect the bonus with any tax. Although it is an international standard, this type of approach has never been and will not be in the discussion.”

It is up to the legislators

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The million dollar question is, can the Aguinaldo be taxed?

Eric Briones, an expert in labor law, says that it is to the legislators, they could listen to the experts and they could adopt such a tax.

“The first law in which the Aguinaldo was discussed was approved in 1954 for state institutions; in 1955 one was approved for autonomous institutions and in 1959 it was extended to the private sector. This issue has always been governed by laws, it has never reached the level of the Political Constitution, to change something that has to do with the Aguinaldo or tax it, the only thing that legislators have to do is reform the law,” he explained.

“Now, as a specialist on the subject, I do not think it is convenient to make a modification like this, we would be going back and disrespecting the struggles of our grandparents.

“In recent times authorities have given priority to the fiscal and the economic and those who suffer are the workers who must pay more and more taxes and see their income reduced, they (legislators) should be more careful with that and defend the worker more,” Briones added.

Tax reform

The dual global income initiative would equalize the levels of taxes paid by wage earners and self-employed workers. The change would imply that the former would pay more and the latter would see a considerable decrease.

The other component of the reform is that if a person has several incomes they will pay tax on the sum of all instead of doing it separately, as is currently the case.

This is the case, for example, of a doctor who works in a hospital and runs a private practice.

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