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Costa Rica Consults Public On VAT Reform

by Mike Godfrey, Tax-News.com, Washington

13 March 2015


The Costa Rican Government on March 10, 2015, launched a public consultation on its plan to implement a value-added tax (VAT) in place of the current general sales tax.

Under the proposal, the VAT would come into force in 2016 at a rate of 13 percent (the same rate currently applied to the general sales tax) before rising to 15 percent in 2017.

Exemptions would be granted to the supplies of companies operating in free trade zones and certain sectors, such as the healthcare and public transport sectors.

The Government also plans to make changes to the income tax regime. Together, the proposed reforms are expected to raise Government revenue by about CRC600bn (USD1.12bn), or two percent of gross domestic product (GDP).

The Government aims to submit the proposal to the legislative assembly by April 13.

The planned tax reforms are part of the Government's efforts to rein in a widening deficit. In 2014 the deficit stood at 5.6 percent of GDP, and in 2015 it is expected to reach 5.7 percent of GDP if reforms are not implemented.

At the beginning of this year Fitch Ratings assigned Costa Rica a negative credit rating outlook due partly to slow tax reform progress.

TAGS: tax | economics | value added tax (VAT) | sales tax | fiscal policy | gross domestic product (GDP) | budget | Costa Rica | tax reform | trade | free trade zone

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