Saturday, 8 August 2020

The VAT is not the end of the world

It would be prudent to be prepared for the entrance of the new taxes on July 1

Each home is different. However, the entry of the Value Added Tax (VAT) will represent an additional cost, which can mean an increase in running the family home.

A strong change will be that of residential rents greater than c670,000 colones monthly, since the 13% tax will be calculated on the total amount.

Apart from that, the impact may not be so drastic, but it does require planning.

- paying the bills -

On the other hand, the tax will be an important change for the State as a measure to reduce the fiscal deficit and combat tax evasion.

What follows are several examples of how VAT would affect some home expenses, and the overall family budget.

Housing

  • Rent less than limit of ¢670,000 colones monthly: ¢0
  • A monthly rent of ¢670,000 (1.5 base salary): ¢87,100 tax

Food

  • For ¢ 5,000 of items not in the ‘basic basket’: ¢650 tax

Water & Electricity

  • Water consuption above the limit of 30 cubic meters per month is taxed on the full amount of the bill. For example, the tax on the consumption of 40 cm would be a ¢4,000 tax.
  • Electricity consumption above 280 kWh monthly is taxed on the full amount of the bill. Example, the tax on a monthly use of 350 kWh would be a ¢2.500 tax.
  • Minimum consuption applies only to residential services.

Extras curricular activities )

  • If you pay ¢50,000 for non-educational acitivies ie soccer classes, dance, music … : there is a  of ¢6,500.
  • For ¢50,000 in an private educational class: the tax is ¢1,000.
  • If you pay ¢40,000 for student transportation: be ready to pay ¢5,200 in taxes.
  • If you pay ¢40,000 at a fitness center: also a ¢5.200 tax is now to be paid.

Basically, it is prudent for families to be prepared for the costs that the VAT will carry come July 1.

Experts recommend families prepare a monthly budget to keep track of finances to lessen the impact.

For families with limited resources each colon counts. Tendentially families of limited resources consume less services, reason why the change of the law impacts them less in absolute amounts, although not relatively.

- paying the bills -

Taxpayers will face such a wide diversity of simultaneous changes, to which they should prioritize on which to focus attention on their mitigation efforts in the coming weeks.

And then there is the uncertainty of things. Though the tax goes into force in a couple of days, there are still issues that must be defined, such as when 1% of the basic basket and 4% goes to health services is applied

Finally, although the VAT rate is 13%, the incremental cost will be lower because there are reduced rates (as above) and, in addition, many of the goods consumed are already taxed 13% under the retail sales tax that ceases to exist on June 30 and is replaced with the VAT on July 1.

What is your opinion on the tax changes? How will the VAT affect you? What recommendations to you have to lessen the tax burden come next week? Post your comments below or to our official Facebook page. Let your voice be heard.

Rico
Ricohttp://www.theqmedia.com
"Rico" is the crazy mind behind the Q media websites, a series of online magazines where everything is Q! In these times of new normal, stay at home. Stay safe. Stay healthy.

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