Wednesday 22 September 2021

Poor households will receive about ¢15,000 a year in 2022 for the refund of VAT to the basic food basket

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QCOSTARICA – Families in the 20% of poor households (those whose income is not enough to cover basic needs) in the country will each receive about ¢15,000 a year as a refund of the payment of 1% to the Value Added Tax (VAT) starting in 2022.

The basic basket is currently made up of 195 items in a wide variety of products that exempt from sales tax. However, the tax reform of 2018 established a 1% sales tax on some basic basket items.

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The VAT came into force on July 1, 2019, but exempting the basic basket for the first year and then postponed to the fourth and first year (as of 2022). In the proposal to the International Monetary Fund (IMF), the Government explains that it will make the refund directly.

“The refund will be made directly to the 20% of households (first two deciles) in the country that receive less monthly income. For the selection of households and the transfer of the refund, the National System of Information and Single Registry of Beneficiaries of the State (Sinirube) will be used,” explained the Government in the proposal document to the International Monetary Fund.

The Minister of Finance, Elian Villegas, explained that, based on the surveys carried out by the National Institute of Statistics and Censuses (Inec), the average household spends about ¢1,500,000 colones a year on basic basket good, and 1% of that is ¢15,000 colones.

As of July 2019, there were about 320,000 households that belonged to the 20%. If poverty exceeds 20%, then all poor households would not be covered, although the majority would.

The objective of the measure is to subtract the regressivity of the tax, meaning that although the tax is the same for everyone, for people with fewer resources (ie the poor) the amount paid represents a greater part of their income.

 

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Q Costa Rica
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