Costa Rica's Economy Is Generating Lots Of Tax

by Mike Godfrey, Tax-News.com, Washington

03 October 2006

High tax inflows have continued to eat away at the Costa Rican government's deficit, which fell to only US$66.8m for the first eight months of 2006, representing less than 1% of GDP, compared with 1.3% a year earlier.

Revenues rose 22% over last year, partly due to higher import tariffs. Last year's tax collections were themselves 20.5% higher than in 2004, reducing the 2004 budget deficit of 2.5%.

Government spending has however continued to increase, by 14% for the first eight months of 2006, and debt interest of US$560m more than wiped out a primary surplus of US$493m for the period.

Still, the economy is doing well. In 2005 there was an increase in exports by 12.8% and a 19% increase in the number of visiting tourists, reaching 1.5 million. Central Bank figures show 5% growth for 2005; and growth is expected to reach 6.8% in 2006.

Successive government have been trying for years to push a fiscal reform bill through the legislature, which would replace the existing territorial basis of taxation with world-wide taxation of income. Such good news from the economy will not encourage legislators to allow the government its planned tax increases.

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