Wacky tax assessment system needs to be improved

The tax scandals of the last two weeks have shown major flaws in the Costa Rican legal framework.

The former finance minister got in trouble for not updating the value of some real estate holdings. Elsewhere in the country many property owners are ducking municipal taxes the same way.

What Costa Rica needs is a uniform method of property assessment and not rely on the self-reporting of owners.

That is true also for the so-called luxury tax where owners of expensive houses have to report the value themselves.

Unfortunately, the property assessment system here is flawed. A.M. Costa Rica has reported in the past that appraisers here use replacement cost new less depreciation. In other words, they figure how much would it cost to replicate this structure and then subtract an amount for the estimated age and depreciation.

This is the most unreliable of all the assessment methods, but it fits the Costa Rican psychic well because the appraiser can count tangible items and add them up.

In fact, the same home in Desamparados is not worth the same as its identical twin overlooking the Pacific in the hills of Dominical. The one at the beach is worth a whole lot more.
The only method that produces checkable accuracy is the market data comparison method. Appraisers see what has sold in the past and use real sales data to estimate the value of a property being assessed.

This brings up the problem with fraudulent sales reports. Costa Rican lawyers report something called fiscal value when a property is sold. That is a low-ball amount given to the municipality for the expressed purpose of evading taxes. The real sales price is usually much more. Lawyers base their fees on the real sales price and not the fiscal value.

Court transcripts have shown that even persons well placed in the government use this method. Unfortunately, this is fraud.

Monday night Ms. Chinchilla promised to come forth with ways for the government to better collect the taxes due it. The first stop should be to check the difference between sales prices and the reported fiscal price on property transfers and assess back taxes when there are discrepancies.

And the tax records should be an open book to the public. Neighbors know what the values are and they know who is cheating. Nosey neighbors can be a big help to the tax man as would shredding the licenses of some lawyers who routinely fabricate fake fiscal values.

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