Government experts have been chewing on tax reform for years

Official concern about the country’s financial situation is not new. And some of the aspects of the failed Chinchilla administration tax package are not new. They have been discussed for years.

Among these is the new tax on corporations. The proposal was advanced in April 2002 as part of the report by a special presidential panel that was supposed to come up with a plan to end deficit spending by 2006. The panel suggested a $200 a year tax. The tax that was instituted is about $316 and will increase each year.

The panel was headed by Aberto Dent, who was finance minister then. The report came just as Abel Pacheco was elected president.

The panel recognized that the level of tax collection was not sufficient to maintain the way the government did business.

Many of the ideas presented have never been incorporated into a legislative bill. Among these is the idea of putting a sunset provision that automatically eliminates a new government agency at a certain date unless it is specifically reauthorized.

The Dent panel also urged eliminating laws that force the government to spend a certain amount of money for certain causes, thereby providing more flexibility. Under current legislation a certain percentage has to go to education and to other specific uses.

Costa Rica also specifies where certain tax money goes. For example, the new corporation tax income will go mostly to the security ministry for the use of the Fuerza Pública. A new surcharge on water bills goes to the Cuerpo de Bomberos to fix up fire hydrants. Even money and goods confiscated from drug dealers does not go to the general treasury. The law says it goes to the nation’s anti-drug institute. That includes the $2 million-plus in U.S. currency confiscated in the last 10 days at the Peñas Blancas border crossing.

Here are some other of the 10-year-old suggestions from the Dent panel:

• tighten controls on spending, eliminate excessive spending and provide more openness to the public;
• make the national budget a legitimate document that clearly reflects expected costs;

• create a system to keep the legislature from increasing expenses to favor special interests;

• create a commission to coordinate all the agencies of government and to make sure they are continuing to do what they were supposed to do when created;

• transfer more power to the municipalities where the work will be done more efficiently;

• reform civil service so public employees could be fired easier;

• create incentives for public employees so they get raises based on performance rather than automatically;

• create one basic system of national pensions;

• Double the property tax on vehicles and boats;

• set up a system to begin imposing tax on companies now located in the tax-free zones so that they will be paying a full tax by 2008.

• eliminate the geographical distortions in the tax law by voiding such free zones as that in Golfito.

• create a super tax-collecting agency that would oversee all the collecting activities of other government agencies. This would be “Agencia Nacional de Recaudación Tributaria.”

The panel also noted that the current income tax setup gives favorable treatment to income coming from some sources and not from others. It suggests levying the same tax no matter what the source. It proposed a “global and unitary tax.”

This global tax would make no difference in the origins or destinations of the tax nor for the type of taxpayer.

Costa Rica does not now impose taxes on money earned outside the national territory, but the Chinchilla administration tax plan would have done this.

The Dent panel urged the country to make more tax treaties with other countries so that there would not be double taxation.

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