Reforms to sales and income taxes seek to stabilize the fiscal situation of Costa Rica
The Costa Rican Government seeks to improve the fiscal situation of the country, so last August 12th it sent new reforms to the Ley del Impuesto sobre la Renta and the Ley del Impuesto General sobre las Ventas, to the Congress (Asamblea Legislativa), in order to manage the spending and collection of these taxes more efficiently.
The proposals aim to ensure the sustainability of the public finances in the long term; make the system more fair so that those who have more, pay more; introduce automatic mechanisms of control; close breaches for evasion; regain the financial capacity of the Central Government and modernize the legislation, says the Government.
The reforms to these laws will be sent to the subcommittee of Financial Affairs of the Congress; however, there is no exact date for its discussion.
Major reforms linked to the new sales tax (Impuesto al Valor Agregado-IVA):
- The current Impuesto General sobre las Ventas (IGV) is replaced by the Impuesto al Valor Agregado (IVA), in order to tax all sales of goods and the provision of services. The first year, after its approval, the IVA will be 14% and the second year 15%.
- The Ministerio de Hacienda explained that the IVA won’t affect the Costa Rican families in poverty or vulnerability, equivalent to 40% of the homes. On the contrary, the IVA will be refunded to those families through an electronic mechanism.
- The IVA will also be refunded to those who pay their private medical consultations with a debit or credit card (hospitalization and surgeries are not included), because -adds Fernando Rodríguez, Vice minister of Hacienda- “the ultimate goal here is to stimulate electronic payments for purposes of control.”
- The IVA introduces the country’s first environmental tax: ¢10 for 250 ml non-returnable plastic containers.
- The IVA increases from 2.5% to 5% the transfer tax of vehicles, aircraft and watercraft.
- With the IVA the tax for the transfer of real estate such as properties increases from 1.5% to 3%.
Services and products exempted from paying the new sales tax (Impuesto al Valor Agregado)
- Regular products of consumption: Vegetables, legumes, rice, bread, lettuce, yucca, sweet potatoes, potatoes, milk and tortillas, among others.
- Private education.
- Rents bellow ¢403,400 (a base salary).
- Consumption of electricity and water (below 250 kWh per month and below 30 m3 of monthly consumption, respectively).
- Wheelchairs, orthopedic equipment, prostheses, equipment used by the hearing impaired, equipment for rehabilitation and special education.
Reforms in the area of the Income Tax (Impuesto Sobre la Renta):
- Mechanisms that facilitate tax evasion by legal corporations are eliminated.
- All the sports organizations, sports companies and other similar that generate profits are taxed.
- The foundations and associations different to the solidarity associations, are subject to the tax, but only by the proportionate share of the lucrative activities that they do.
- A new fiscal period is established from January 1 to December 31 of that same year.
- The declaration and payment of the impuesto de la renta should be done 2 months and 15 days after the end of the period; partial tax payments will be made in the months of June, September and December.
- For individuals, the contribution to the Health and Maternity Insurance of the Caja Costarricense de Seguro Social (CCSS) is introduced as a deductible expense.
- All the reforms proposed by the Government should be studied in the Congress for their approval.