Deputies will analyze the plan to either reject or approve it before it gets sent to the IMF asking for a loan of $1.75 billion.
 - A.M. Costa Rica wire services illustrative photo -

Published Tuesday, September 22, 2020

Business Chambers reject
government's plan to increase taxes

By the A.M. Costa Rica staff

The exponential growth of salaries and transfers (referring to expenses) to decentralized organizations from the government's public finances has been ongoing, worsening since 2007, according to the Costa Rican Chamber of Exporters, CADEXCO.

The new tax package is part of the proposal that the government presented to congress last week. Deputies will analyze the plan to either reject or approve it before it gets sent to the IMF asking for a loan of $1.75 billion.

According to the CADEXCO, while negotiating with the IMF, it is necessary to apply significant spending cuts, approve the Public Employment Law, the State Reform, and execute a true economic reactivation agenda that allows companies to accelerate socio-economic development.

However, the chamber announced that they hoped that the proposals with the IMF would be balanced, address the public spending fund problem and not put more pressure on the people and business by increasing taxes.

Regrettably, the same number of public jobs continues on voluntary mobility (referring to the voluntary option of public employees to resign), as well as the same high levels of transfer to decentralized entities; salary bonuses; incentives, and the refusal not to increase the sale of entities (referring to the sale of public institutions), the chamber said in its statement.

According to the CADEXCO, current economic conditions have reduced the income of companies, which hurts wages. Assuming additional taxes impacts the entire population.

“As an export sector, we expected a rigorous proposal based on the fiscal rule, without the creation of new taxes and with efficiency in tax collection. We also require advancement in the Public Employment Law and in the merger of public institutions to seek efficiency and reduce spending," Laura Bonilla, President of the chamber said. "This announcement (referring to the
IMF agreement) should focus on protecting the population and the productive sectors, to improve their development and not punish them with more taxes."

It is necessary for the government to take responsible measures about the urgent need to reduce public spending and rationalize salaries, the chamber said in its statement.

In the same way, the Chamber of Commerce announced its disapproval of more taxes.

In the case of the Commerce's Chamber, they also oppose the new bill No. 21658 called "Law for the Regulation of Electronic Nicotine Administration Systems (SEAN) and Similar Systems Without Nicotine (SSSN)," which seeks to create a tax on the import or national manufacture of SEAN / SSSN, their accessories and other complementary goods, including liquid for their use.

According to the Chamber, the creation of new taxes will have unfavorable consequences for the national economy such as increased unemployment, an economic recession and an increase in informal businesses (referring to businesses that do not report taxes or are not legally registered) and illicit trade. These situations are more than harmful to the Costa Rican society.

The economic contraction of -5% projected by the Central Bank and the unemployment of 24.4% presented by the National Institute of Statistics and Censuses are just some of the indicators that show the harsh national reality, the chamber said in its statement.

"New taxes, of any kind, only create disincentives to consumption and production; effects opposite to what the country needs at the moment," Alonso Elizondo,  Executive Director of the chamber said. "To reactivate the economy and generate employment, it is necessary to recover the confidence of both the consumer and the producer, and for this, it is necessary to create public policies to stimulate the economy."

High taxes imply an increase in illicit trade and the country's authorities must understand that, Elizondo said.

Taxes increase the prices of items. This causes a lack of profit for companies, withdrawing them from the market (referring to becoming less competitive companies) and reflecting a direct loss in tax collection.

Last week, the Costa Rican Chamber of Hotels, CCH, classified the government's plan to present the IMF as unacceptable.

The CCH declared its opposition to the adjustment measures contained in the plan, considering them unbalanced and to the detriment of the productive sector.

“We find the government's attitude unacceptable. The proposals go against private companies, they (referring to new taxes) will make us less competitive, more expensive and it is increasingly difficult to do business in this country," Javier Pacheco, President of the CCH said. "The government must seek economic growth by reducing the tax system, attracting more investment and promoting job creation, but these proposals go in the opposite direction.”

According to Pachecho, it is regrettable that even though the government knows the drop in economic activity due to the pandemic, it seeks to create new taxes without proposing important reforms to the government itself (referring to the government expenses).

“The proposal between spending containment and the tax increase seems unbalanced. We reject the imposition of new taxes. Precisely, most of the measures focus on the collection from new taxes and there is no talk of a true cut in spending and a reduction in public organizations,” Pachecho said.

The CCH called on the government and the Congress to seek a true economic reactivation plan for the country.

Similarly, the National Chamber of Tourism, Canatur, opposes the new tax plan, calling it "a punch to businessmen."

According to Canatur, in the terms outlined in the proposal presented by the government, there is a clear and evident disproportion in the distribution of charges, mainly the new taxes contained in the plan.

"We are not unaware that we are in the middle of an economic crisis, so we understand that together we must contribute to face it and not put the stability of the country's economy at higher risk," said Ruben Acon, President of the Chamber. "However, we do not see a sacrifice or the decisive decisions to achieve the big reforms that are required on the government's side to solve structural problems and not continue in the same circle of problems.” 

The impact that the tax may have on the economy of Costa Rican families as part of the temporary fiscal measures is worrying. Likewise, the increase in income tax on wages, both charges will significantly limit consumption capacity and even the possibility of meeting basic needs, CCH said in its statement.

Tourism entrepreneurs are even more concerned about the increase in the property tax, at a time when their economic activity has been paralyzed for six months and without a hint of a prompt and sufficient reactivation to support this increase in the tax, the chamber said.

Last weekend, a large caravan of vehicles moved from the Monument of the former President Leon Cortes Castro, located in Sabana, along 14 kilometers over route 27, to reach President Carlos Alvarado’s house. His home is located in Santana District in San José Province.

The so-called Bloque Patriótico Pacifista organized the protest in which hundreds of people showed up in their cars, motorcycles, bicycles and even on foot to complete a protest caravan of several miles.

The protesters reject that the negotiation proposal with the IMF, is based on more taxes and not on a substantial decrease in government spending, said the organization in its statement.

According to the government, the new taxes are temporary measures.  The main taxes disclosed by the government that are included in the plan are:

A new tax to all financial transactions. The tax of approximately 0.3%, would be applied to all transactions that are made through banks, such as purchases with debit or credit cards, payments of public services using internet banking, or every time a banking platform is used to move money from one account to another.

The new tax will apply for four years to all banking and securities transactions. In the first two years, it will be 0.3%. In the next two years, it will be 0.2%, said the government in its statement

Tax is on salaries, pensions, company profits, and money transfers abroad.

In the case of wages, the tax will be staggered, from 2.5% to 10%, depending on the amount of wages. Starting with salaries of $1,400 and up.

In the case of the earnings of independent professionals, the tax will apply progressively from 2.5% to 10%, starting on reported earnings of approximately $6,110 and up.

Tax on companies' profits. In this case, a tax would also be charged in a staggered manner, between 2.5% and 10%. Starting with reported net profits of approximately $183,302 and up.

The tax on sending money abroad will be 5%. It will apply to people or businesses that send money from Costa Rica to any country. It also applies to send money from Costa Rica even if the company is not domiciled in the country.

Extra house tax. Currently, the property tax is 0.25% of the taxable value of the property. The proposal is an increase to 0.50% (the double) to 0.75%.

More indirect taxes would be carried out through the elimination of exonerations that are currently in the income of cooperatives, school salary bonuses, capital income among others.

Should the government negotiate the billion-dollar loan agreement with the IMF to avoid more taxes? 
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