Costa Rican Government Resurrects Tax Reform Debate

by Mike Godfrey, Tax-News.com, Washington

21 July 2006

The government of Costa Rican President, Oscar Arias, is working on new taxation proposals affecting corporations, financial institutions and individuals, and is soon expected to submit new plans to the national assembly.

While details of the new plans are at present vague, it is thought that the proposals include some elements of the fiscal reform bill which was killed off by the constitutional court earlier this year after languishing in the Legislative Assembly for four years.

Arias, who was elected earlier this year by a slender majority, is known to be a supporter of the tax reforms, although he is likely to introduce a slimmed down version of the original bill.

One of the aspects of the plan which is expected to survive is the introduction of value added tax in place of the current sales tax. It is thought that VAT will be charged at the same 13% rate as the current sales tax.

A report by Costa Rican online daily AM Costa Rica suggests that the government is also considering a financial transactions tax which will be charged at five colons for every 1,000 colons, or 0.5%.

The government is also expected to revamp the country's corporate tax system.

However, it is unclear whether the Arias administration will proceed with a plan to introduce global taxation, a major element of the old fiscal reform bill.

At present, Costa Rica collects tax only on income earned within its borders, and some groups fear that global taxation would reduce the country's attractiveness as an investment base by deterring wealthy foreign investors and retirees.

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