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.
 - Bloque Patriótico Pacifista courtesy photo -

Published Monday, September 21, 2020

New government tax plan for reaching
a $1.75 billion loan generates protests

By the A.M. Costa Rica staff

On Saturday, 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 caravan of several miles.

"This is a country issue (referring to the new tax plan), it concerns everybody. The people are tired of them (referring to the government) from so much abuse, just thinking about taxes," organizers said on a video of the rally posted on the Bloque Patriótico Pacifista Facebook page.

The protesters reject that the negotiation proposal with the International Monetary Fund, IMF, is based on more taxes and not on a substantial decrease in government spending.

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.

This was one of many organizations that have expressed its opposition to imposing more new taxes.

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," said Javier Pacheco, president of the chamber." 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 the chamber, 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. 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,” said Ruben Acon, president of the chamber.

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.

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.

Is it a smart government strategy to impose more taxes to get a new a billion-dollar loan with the IMF during the pandemic crisis?
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