Tuesday 26 January 2021

Pending task: Lowering costs for tourists via taxes

Lacking in the ICT proposal to reactive the tourism industry is a break on tax for the sector, rather it is pegging the sector's future only on the devaluation of the dollar exchange rate to lower costs to tourists

(QCOSTARICA) Reducing the cost of tourist services and alleviating the burden on companies in that sector through a greater tax exemption is not among the points on the road map that the Instituto Costarricense de Turismo (ICT) – Tourist Board –  presented to rescue the tourism industry after guidelines are relaxed to prevent further outbreaks of COVID-19.

In 2019, tourism generated more than US$4 billion in income, representing 7% to that year’s Gross Domestic Product

In the plan presented by the Minister of Tourism, María Amalia Revelo, to the country, last Tuesday, the tax issue is absent, one of the most relevant due to the weight it has on the final cost for consumers.

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There are also no other recommendations that experts have made during the development of the pandemic, such as that the banks be more flexible in the repayment of the som US$700 million in loans for the tourism sector, or that the Banco Central de Costa Rica (BCCR) – Central Bank – devalue the colon with respect to the dollar, so that the prices of the services consumed by tourists in the country will drop.

The absence of these decisions in the roadmap contrasts with the ICT’s proposal to focus the revival of the tourism sector by promoting tourism by nationals.

The ICT mentioned that it intends to reduce prices for the consumer with “strategic alliances” with cooperatives, solidarity associations and with the financial sector that would ease the burden on indebted Costa Rican families, many of whom have been victims of the wave of unemployment caused by the impact of the coronavirus on the economy.

In a press release announcing the rescue plan, the tourism Minister explained the use of “raffles and prizes to reduce costs” for tourists,

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The ICT strategy has eight priority axes:

  1. The attraction of airlines.
  2. Marketing and promotion locally, internationally, and in specific niches such as meetings.
  3. The tourist product.
  4. Industry companies.
  5. Training and employment.
  6. Foreign and national investment.
  7. The development of the Gulf of Papagayo Tourist Pole.
  8. Cruise ship attraction.

Until now, the Government’s actions related to alleviating the tax burden for tourism companies are limited to the moratorium during May, June, and July in the payment of taxes such as 5% for the sale of each air ticket for international travel, 5% on tickets whose destination is Costa Rica and the $15 for the entry of tourists by air.

Pending task

President Carlos Alvarado and his economic teams is expected on Friday, May 9, to present a plan to revive the economy after the SARS-CoV-2 virus pandemic.

Until now it is a mystery whether the tourism sector, one of the most dynamic in the Costa Rican economy – with a generation of foreign exchange of US$4 billion dollars in 2019, representing 7% to that year’s Gross Domestic Product (GDP), 211,000 direct jobs, and thousands more indirectly.

Even so, the Minister of Finance told the media that he would not agree to an extension of the Value Added Tax (VAR) for the tourism sector, as proposed by PLN legislator, Roberto Thompson, in a bill that he presented to the legislature last April.

Thompson’s intentions are for Parliament to approve a modification to the transitory article of the

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Pending task

President Carlos Alvarado said on May 4 that this week his economic team will present a plan to revive the economy after the SARS-CoV-2 virus pandemic.

Until now it is a mystery whether the tourism sector, one of the most dynamic in the Costa Rican economy – with a generation of foreign exchange of $ 4,000 million in 2019, a contribution of 7% to that year’s gross domestic product and the generation of 211,000 direct jobs — will be included among those actions to be announced.

Even so, the Minister of Finance anticipated in the media that he would not agree to extend for one more year the exemption from the value added tax (VAT) for the tourism sector, as proposed by the liberationist deputy, Roberto Thompson, in a bill that he presented to the legislature last April.

Thompson’s intentions are for Parliament to approve a modification to the transitory article of the Public Finance Strengthening Law that establishes that the tourist services provided by those companies registered with the ICT will be exempt from VAT during the first year that the regulations are in force, which ends in July of this year. The legislator proposes to exempt these services from the VAT for one more year.

Thompson’s proposal adds that in the third year, the tourism sector would pay a 4% VAT, 8% in the fourth and start paying the full 13% in the fifth year.

“(Tourism) is, without a doubt, the sector hardest hit by this crisis and requires, for the recovery process, better conditions to offer, precisely, attractiveness, first, to internal visitation and, later, in a second stage, to external visitation,” said Thompson.

Estimates by Consejeros Econónicos y Financieros S.A. (Cefsa) indicate that the country will stop will lose between up to US$2.5 billion dollars this year due to the brakes applied to all tourist activities since March. The firm’s projection is that the fall in tourism this year will be 48%.

Last year, according to official figures, 3 million tourists entered Costa Rica. The ICT estimates that it will take at least 18 to 24 months to recover to that level of visitation to the country.

In this difficult context and due to the importance of tourism for the country’s economy, Legislator Thompson believes that it is more urgent for companies in the tourism sector to have more flexible tax treatment.

“It seems contradictory that, on the one hand, the Government announces a plan to reactivate tourism, but that it does not give concrete signs of what the sector needs to be able to advance along these lines. And, one of the signs is to extend for a further year, at least, the application of VAT, which would allow us to tackle this new difficult period in much better conditions,” said the legislator.



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