Two aspects included in the Plan Fiscal (tax reform) would hit tourism, making services more expensive and, thus, the cost of vacationing in Costa Rica.

There could be a contraction in the next high season due to the uncertainty, the speculation surrounding the entry of the Value Added Tax – VAT,” said Shirley Calvo, executive director of Canatur. La Republica

A contraction of the national tourism and a reduction of competitiveness as a destination country before other markets in the attraction of foreigners could remove it from the game.

In the first place, the Value Added Tax (VAT) – Impuesto al Valor Agregado (IVA) in Spanish – which establishes a gradual increase in prices. Under the VAT, tourism services will be taxed at 13%; however, those registered with the Costa Rican Tourism Institute (ICT) will be exempt until June 30, 2020, then pay 4% from July 2020 until June 30, 2021, 8% from July 2021 to June 30, 2022, and 13% from July 2022.

This year, however, operators will experience an increase in the cost of some raw materials starting July 1 when the VAT goes into effect, generating an additional burden that they or their clients would have to assume.

Second, the VAT also taxes air travel, which will be 4% over 10% of the price of the ticket, whether local or international.

David Aléman, regional director for Avianca airlines, told La Republica, “In several of the markets we have seen that the allocation of taxes and fees to air tickets generates a contraction in demand. We see with concern any measure that affects the demand for travel, as the airline industry has a significant impact on economies.”

The cost of “turistear” (touring) in a country is closely related to the cost of living, according to Mauricio Ventura, the former minister of tourism and currently a consultant for the Sinergia Consulting Group.

The former minister added, “There are a number of factors that would affect the competitiveness of Costa Rica besides the VAT, which will undoubtedly make it a more expensive destination than it already is.

Costa Rica is currently the fourth most expensive country in the Americas, according to an index produced annually by The Economist magazine.

The panorama is compounded by the uncertainty of the possible loss of incentives for hotel developers, which, if they happen, would put into question the construction of real estate, or represent a surcharge on the guest rate.

However, the sector is expected to appeal to Costa Rica’s sustainability, biodiversity, and product innovation to advance the goal of attracting more tourism.

The country expects to is to attract between 3.5 million and 4 million visitors in 2021, but that may not be a reality as the country becomes more expensive, perhaps not right away, but it definitely when the IVA on tourism reaches the 13%.

Tourism represents between 5% and 6% of the Gross Domestic Product (GDP) and is one of the largest generators of currency and employment in Costa Rica (data for 2018 and 2017, respectively): US$3.8 billion in foreign exchange and about 460,000 jobs.

In an interview with La Republica in May 2018, the current Minister of Tourism, María Amalia Revelo, “People will say that Costa Rica is expensive, but it depends on the value that is given”

For her part, Shirley Calvo, Executive director of Canatur, “We express the concern of taxing the sector, sensitive to the price; It is one of the first services that national families would stop consuming or postponing. As for foreigners, we are betting on the country’s positioning and that the variation would not be significant for them.”

Challenging panorama

The sector must overcome the challenge posed by the entry of a new tax.

Threats

  • Tourist services will be more expensive starting next year
  • The VAT on supplies and services starting on Jul 1
  • Loss of hotel incentives
  • Competitors

Opportunities

  • Country positioning as a sustainable destination
  • Country rich in biodiversity
  • Central American leader in tourism
  • Bet on authentic experiences that connect tourists with the essence of the country

Innovation

  • Differentiated tourism products would be Costa Rica’s lifeline in the face of more expensive services.

Source: La Republica