According to the Costa Rican Banking Association, ABC, the government's intention to apply a tax on financial transactions,
as part of its proposal to the IMF, will affect all bank customers. - A.M. Costa Rica wire services photo -
International Monetary Fund agreement
Published Friday, September 18, 2020
could imply more taxes, experts say
By the A.M. Costa Rica staff
Costa Rica's fiscal deficit and financial stability have reached a critical point, which was increased by the covid-19 pandemic. The country no longer can handle any more economic shocks in uncertain scenarios, said the Costa Rican -American Chamber of Commerce, AmCham, in its statement on Thursday.
According to AmCham, Costa Rica's access to an Extended Fund Facility, EFF, agreement with the International Monetary Fund, IMF, "is essential for the country to reactivate the economy and investor confidence."
The EFF agreement is the first step to relieve the impacts of the current crisis, restore financial stability and put the country on a better path for economic growth, said Gisela Sánchez, president of AmCham.
However, the Chamber considers that an additional item should be added in the agreement, for the reform of the public sector to make it achieve the "right size" and with that, there will be an important reduction in government spending.
Perhaps the Chamber has said it is against more taxes, this agreement with the IMF could include new taxes.
These taxes should not only affect the private sector, and require a joint approach, the Chamber said. "Without government reform, this would once again be a tax package that only reduces the country's competitiveness," Sánchez said.
Due to the significant foreign investment in the country, especially because of the urgent need to generate more jobs, AmCham rejects any new tax on the companies in the Free Trade Zone Regime.
However, according to the Costa Rican Banking Association, ABC, the government's intention to apply a tax on financial transactions, as part of its proposal to the IMF, will affect all bank customers.
The tax on financial transactions, which could be included in the agreement with the IMF, would be applied to any transaction that a person carries out through their bank or any other financial company.
The tax, which could be 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.
According to banking experts, consumers could try to avoid paying the tax, using cash for payments and purchases, which would cause a reduction in debit accounts in banks among more negative effects.
In August, the Congress approved the file No.22018, a government loan agreement with IMF for $508 million.
The loan will be used mostly to attend to the national emergency caused by covid-19, congress said in its statement. In addition, the loan will have a lower interest than the percentage currently paid by the government in international loans.
According to the government, in the future budget adjustments, it would achieve a surplus of 2% of GDP in 2024. And a debit equivalent to 50% of GDP in 2034.
According to Congressman Erwen Masís, who voted in favor of the loans, in theory this contract with the IMF is not new debt. It is a change from expensive loans to another with more favorable and cheaper conditions to ease the economic crisis before and after the pandemic.
The loan will be received in a single tract by the IMF and deposited in the Central Bank of Costa Rica. The funds will then be transferred to the Ministry of Finance, where the goal is to finance government expenses, Congress said in its statement.
$50 million will be transferred to Social Security, as partial payment for the debt that the government has with that organization, Congress said.
It is expected that during this week, the final vote will be given for the approval or rejection of the loan with the IMF.
According to the government, the loan is to finance this year's budget. The $500 million-plus loan was agreed at an interest rate of 1.55% per year. The term of five years includes quarterly payments from the third year of disbursement, the government said.
"This loan is important in the effort that the government has followed to change expensive debt for cheaper debt, which helps throughout the process of fiscal consolidation," said Elian Villegas, Minister of Finance. "Furthermore, it is a sign of confidence of the IMF on the route taken by the government.”
Costa Rica and the world face one of the biggest economic crises of the last century, as a result of the pandemic. "It is estimated that in 2020 the national economy will decrease by 3.6%, with a partial recovery of 2.3% in 2021," the government said in its statement.
The planned loans for this year are predicted to be equivalent to 7.3% of G.D.P., according to the government.
Of these, Congress has already approved loans equivalent to 3.6% of G.D.P. Other loans equivalent to 0.8% of G.D.P. have already been presented to Congress for its approval. And the list continues. More loans equivalent to 0.8% of G.D.P. will be presented to Congress in the coming weeks.
Additionally, loans equivalent to 2% of G.D.P. are in the process of being negotiated with international banks, said the government.
Should the government negotiate with the IMF to avoid imposing more taxes on consumers? We would like to know your thoughts on this story. Send your comments to email@example.com
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