Costa Rica’s Proposed Tax Reforms Hit The Buffers

by Mike Godfrey, Tax-News.com, Washington

12 July 2004

Costa Rica’s long-awaited fiscal reform package has suffered another setback after it emerged that legislators will not be able to vote on the measures until a constitutional court has decided whether the former president of the Legislative Assembly acted unconstitutionally.

The Permanent Fiscal Reform Plan was first conceived two years ago to bolster the government’s tax revenues, pay off the country’s growing foreign debt, and reduce the deficit to 2.65% of GDP through a series of tax hikes and improved collection methods.

However, the implementation of the reform package has been dogged by delays, as Deputies in the Legislative Assembly have failed to meet successive deadlines for approving the legislation.

In the latest hold-up, two deputies are alleging that the then-president of the Legislative Assembly Mario Redondo violated the Constitution by acting with secrecy and without the required approval of two-thirds of lawmakers last March in an attempt to accelerate the debate on the tax package.

Last month, the Constitutional Chamber of the Supreme Court, known as Sala IV, accepted the action by the deputies. If their claims are upheld, it could mean that all changes to the tax plan made since March this year will be annulled.

According to reports, some experts consider that such a result could sound the death knell for the fiscal reform plan.

“We expect the Sala, taking into account that this is an issue of national importance and considering the problems it’s causing for the administration and public services, will rule on it soon,” said Federico Vargas, one of the deputies behind the action, according to the Tico Times.

“We can’t tell it how to rule because it has autonomy. But it must issue a ruling before it’s too late,” added Vargas.

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