New Tax Proposal
The Government announced the Plan to overcome the fiscal impact of the pandemic , a proposal to negotiate an agreement with the International Monetary Fund (IMF) to obtain financing of $ 1.75 billion. As in other countries, Costa
The Government announced the Plan to overcome the fiscal impact of the pandemic , a proposal to negotiate an agreement with the International Monetary Fund (IMF) to obtain financing of $ 1.75 billion.
As in other countries, Costa Rica has seen a contraction and a fall in economic activity due to the pandemic. The strong impact on national production, the decrease in State income and the increase in investments and expenses to attend the health emergency not only halt the improvement of the public finances in which they worked, but also aggravated the fiscal imbalance.
Against this background, the proposal details measures such as reducing the cost of social security contributions for companies by at least 5 percentage points over four years. This action will reduce hiring costs and stimulate employment. In addition, it will not affect the finances of the Costa Rican Social Security Fund, which will always receive the resources, financed with 1% of GDP from the collection of the financial transaction tax.
Likewise, public debt will be reduced by 6 percentage points of GDP in order to change the cycle of indebtedness and the enormous payment of interest that the country has had in recent decades.
Four other measures to promote employment and economic growth are the reduction of electricity costs, reforms for the promotion and creation of employment, the Digital Resources Program at the service of the Educational Community and the plan of public-private alliances for the public investment.
It is also expected that the VAT refund of the basic food basket to the poorest 20% of the Costa Rican population, with which they will have more money available to meet their needs.
“Costa Rica throughout its history has been an example of various achievements, especially those associated with health programs, education, a healthy environment for investments, and pensions and solidarity insurance. However, the effects of the health crisis have generated an unprecedented economic impact, it is for this reason that we have set out to build a proposal to achieve a reasonable agreement, which includes a significant decrease in spending and an increase in income, which allow us to make an adjustment for the benefit of families and to guarantee the continuity of a State at the service of the Costa Rican population, ”said Elián Villegas, Minister of Finance.
Rodrigo Cubero, president of the Central Bank of Costa Rica, stated: “The COVID-19 pandemic has strongly impacted the Costa Rican economy in recent months. It has also severely hit public finances, and therefore it is necessary to undertake a fiscal consolidation in addition to that of December 2018. The country faces a historic moment and we have the responsibility to promote this fiscal adjustment to ensure macroeconomic stability and promote reactivation. and the well-being of Costa Rican families. Making this adjustment within the framework of an agreement with the IMF for three years is our best option, as it would give access to resources in better conditions and would provide a seal of confidence in the country’s economic policies ”.
Permanent and temporary tax measures
The tax on electronic transactions and checks is part of the 9 temporary tax measures on income, expenditure and assets.
This will charge a small fee for all banking and securities transactions for four years. The first two years will be 0.3%; In other words, in a transaction of ¢ 10,000, ¢ 30 will be paid and in a transaction of ¢ 100,000, ¢ 300. In the next two years, the charge will drop to 0.2%; That is, ¢ 20 would be paid in a transaction of ¢ 10,000 and ¢ 200 in a transaction of ¢ 100,000.
It is projected that with this tax it is possible to finance what will no longer be received by social charges and the reduction of public debt.
Another temporary measure is the extraordinary income tax on salaries (and pensions), profits and remittances abroad.
In the case of salaries, this extraordinary tax will not affect salaries of less than ¢ 840,000. In which cases does it apply? An additional 2.5% will be charged for income greater than ¢ 840,000, an extra 5% for income greater than ¢ 1,233,000 and an additional 10% for income greater than ¢ 4,325,000.
As for profits, it does not apply to those people or companies that do not receive profits. In the case of individuals with lucrative activities, those with net income greater than ¢ 3,638,000, an additional fee will be charged that will gradually increase from 2.5 percentage points to 10 percentage points in the last tranche. For legal entities with a gross income greater than ¢ 109,228,000, an additional rate of 6 percentage points will be applied to their net profit. For those legal entities with gross income lower than ¢ 109,228,000, for the first ¢ 5,143,000 of net income, an additional fee will be charged that will progressively increase from 2.5 percentage points in the first tranche, to an additional 10 percentage points in the last stretch.
In addition, 5% will be charged for remittances abroad to all income from Costa Rican sources of natural and legal persons not domiciled in Costa Rica.
They also propose an increase in the property tax on real estate by 0.50 percentage points and the elimination of exemptions to cooperatives, school salary, capital income and SUTEL, among others.
All these measures are accompanied by the various initiatives and efforts made by the Government to reduce expenses.
Some of the proposals in this area are the closure or merger of decentralized bodies, the elimination of annuities, the reduction of political debt by 50%, the process of voluntary mobility of public officials and the sale of assets such as FANAL and BICSA.
“The agreement with the IMF is a necessary milestone in the process of fiscal consolidation and macroeconomic stability, to enable potential growth, job creation and the well-being of families. Sacrifices in terms of spending will be fundamental, such as those raised in the public employment reform, institutional redesign, spending cuts in strict adherence to fiscal rule, the opening of a voluntary mobility program, the suspension of annuities and of salary increases and the sale of assets ”, explained the Minister of National Planning and Economic Policy, María del Pilar Garrido Gonzalo.
NOTE. This is an excerpt from a press release by the CR President´s Office.