Costa Rican Lawmakers Attempt To Fast Track Tax Plan

by Leroy Baker, Tax-News.com, New York

18 May 2005

An attempt by supporters of the Costa Rica's long-delayed package of tax reforms to fast-track the proposals through the legislature is in danger of hitting the buffers as lawmakers scrutinize parliamentary rules to determine whether the measures can pass on a simple majority.

Deputies in the Asamblea Nacional who favor the new tax plan, which was first drawn up in 2002 to help tackle the country's mounting level of debt, are currently attempting to steer through the legislation so as to avoid a filibuster on the floor by members of Movimiento Libertario, who oppose the plan.

By exploiting a new amendment to the assembly's procedural rules known as '208 bis', supporters of the tax plan hope that the bill can go to a vote without extensive discussion.

However, lawmakers have pointed out that the 400-plus page tax plan contains measures that require a two-thirds vote in order to be approved, thus making the bill ineligible for the fast track route.

The assembly's president, Gerardo González, who is a member of President Abel Pacheco's Partido Unidad Social Cristiana, which supports the tax plan, is tasked with studying the situation.

The tax plan itself intends to raise an additional $500 million in revenues in order to plug the government's budget gap and service growing levels of debt.

Under the plan’s major proposals, Costa Rica’s income tax will cease to be levied on a territorial basis, and the top income tax bracket will be raised from 25% to 30% as part of a general overhaul of income tax thresholds.

Other measures will see the 13% sales tax transformed into a value-added tax, with the levy extended to services such as legal fees and medical services in addition to payments for goods.

Also, the tax on luxury vehicles costing more than $35,000 would increase from 15% to 50% under the plan, while casinos would have to pay a monthly tax of between CRC150,000 and CRC420,000 ($318 and $890) depending on their hours of operation, and a tax of CRC130,000 ($276) monthly for each slot machine.

Electronic betting and gambling firms will pay a tax of between CRC13 million and CRC32 million ($27,600 and $67,900), depending on the number of employees.

However, the tax package also contains a number of incentives to help facilitate trade and investment. As a result, corporate tax will be reduced to 25% from 30% whilst additional tax breaks will be introduced to help small and medium-sized businesses and hi-tech firms.

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