Wednesday 16 June 2021

Tourism Operators and Tax Man In Conflict Over Sales Tax On Recreation

If the Ministry of Finance has its way it would mean tourists would have to pay sales tax on recreation items such as hiking, walking tours, canopy, rafting, etc. Photo Diana Méndez, La Nacion

Q COSTA RICA  – The Cámara Nacional de Turismo (Canatur)  – National Chamber of Tourism  – denounced that Ministerio de Hacienda (Ministry of Finance) intends to collect sales tax on services generated in recreation and similar tourist centers.

The hoteliers and tourist entrepreneurs assert that the intentions of the Directorate General of Taxation (DGT) of the Ministry of Finance are “illegal” and contrary to what was decided by the Administrative Contentious Court in 2015.

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According to Canatur, three companies in La Fortuna de San Carlos, in Alajuela, received notifications in which they were asked to pay 13% of the sales tax for the recreational services they perform for local and foreign tourists.

Carlos Vargas, head of the DGT, told that “… the new document dated October 2016, establishes each specific case must be analyzed to determine whether the recreation center has services that are subject to the payment of taxes. Vargas said that the document “is not reviving’ the collection of 13% sales tax on recreation centers as proposed in 2014. On the contrary, it aims to analyze each case to determine if the tax can be applied or not.”

“… The document, held by La Nacion, explains that services that are provided outside of a special limit of the establishment or recreation ground such as zoos, spas, canopy tours, hiking trails, bird watching, bungee jumping, among others; should be subject to the payment of sales tax.”

The resolution signed by Jenny Jiménez Vargas, head of the Dirección de Técnica Tributari, explains that these services must pay the tax as long as they are managed and provided by the recreation center or converge in it.

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“For example, the resort or tourist center, which manages, coordinates and charges an activity that can be carried out outside the resort, but ends up converging in the same resort, as users-clients of the resort and staying in the resort. Consequently, each activity has to be analyzed within the concept of a recreation center “, exemplified the DGT document.

What this means is that the DGT says that to evade the payment of sales tax, there have been cases where, for example, a spa charges the entrance to its customers and reports the tax for that item.

However, the same spa offers a number of internal recreational services such as hiking, canopy or hiking, for which it charges and does not pay the sales tax. The DGT considers the tax can be charged for each of the activities that are part of the recreation service.

Canatur legal advisors say the DGT is going back to the same practice annulled by the Administrative Contentious Court in 2014. Pablo Heriberto Abarca, president of Canatur, explained the court’s decision was made because the services that were intended to be taxed in recreation centers were not established.

“We do not understand why Taxation is committed to make interpretations that replace legislative work and obviate the reality and spirit of the law, since those activities if they were subject to tax, would have been explicitly established in the law,” said Abarca.

In summary, what all this means is that if the DGT is successful in applying the tax to all services, the consumer (tourist) will be paying higher prices, 13% more which is the current sales tax.

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