Ms. Chinchilla brands tax cheats as criminals

Speaking to a friendly crowd from the budget ministry, President Laura Chinchilla lashed out Thursday against tax evaders and said they should be called by what they really are, criminals.

She also spoke in depth about the central government’s lack of resources that jeopardize its ability to fulfill all the demands of society. She promised that her government would be responsible with spending and just in tax collection.

The president is beginning a personal campaign to sell her tax increase plan that many pronounced dead on arrival when it reached the legislature Monday. Among other changes, the plan calls for a 14 percent value-added tax instead of the current 13 percent sales tax.

Ms. Chinchilla and Fernando Herrero, the minster of Hacienda, spoke in the Teatro Nacional to workers from the ministry, which includes among others, Tributación, the tax collecting agency.

At the same time the administration is negotiating with public employees over a pay raise for the first half of 2011. The raise for private employee minimum salaries already has been set at 2.63 percent for the first six months of the year. A list is on the Web site of the Ministerio de Trabajo y Seguridad Social. In past years when negotiations failed, the government fixed the rate of increase. However, the increases cover all the salaries of some 175,000 public workers, not just the minimum salaries.

Ms. Chinchilla said this week that she would freeze government hiring.

By addressing the topic of tax cheats in her talk, Ms. Chinchilla touched on one of the major criticisms of the tax increases. The government has not been successful in getting the tax money it already is owed. Some estimates say that cheating costs the central government up to 3 percent of the gross domestic product.
The most obvious is evasion of the sales tax. In some Pacific coast towns, store owners call it the resident discount. They simply do not collect the 13 percent tax from repeat customers and do not issue a formal receipt.

Tributación has held lotteries in the past where they asked residents to submit receipts they obtained from their local businesses. Presumably inspectors followed up on the receipts that did not show tax collected. Still even a furniture store in the shadow of the Tributación offices in San José gave customers the option of not paying the tax.

Another loss to the country is when a real estate investor sells property and then transfers the proceeds from his or her Costa Rican corporation to a personal account without paying the required tax. There does not appear to be a system in place to track such activities.

The Chinchilla tax plan would raise 500 billion colons or about $1 billion, according to government estimates. However, the government has grossly overestimated expected tax income in the past.

For expats the increases in taxes would include a doubling of the real estate transfer fee, which is now 1.5 percent.

There also would be taxes assessed on a number of daily activities that are now free of tax, like lawyer services. A summary is HERE.

Ms. Chinchilla received some backhanded support from La Nación Thursday. The newspaper editorialized that the legislature should study the fiscal situation from its roots and not concentrate on percentages of taxes and the problem of evasion.

It noted that Chile has a 19 percent value-added tax. And the editorial said that the opposition parties in the legislature would be seeking more money if they were in power.

The government has run a deficit for the last three years, it noted.

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