Business chamber gives support to a value-added tax

The country’s leading business chamber Tuesday endorsed a value-added tax as a way to reduce interest rates and the central government’s deficit.

The organization, the Unión Costarricense de Cámaras y Asociaciones del Sector Empresarial Privado, said that high interest rates were due to the need to finance the national deficit and that a value-added levy would reduce tax evasion.

President Laura Chinchilla has been pushing a value-added tax since the beginning of her presidential term, but a tax package that contained such a measure failed to meet constitutional court muster.

The business chamber said that in addition to the new tax system a way had to be found so that residents would be able to deduct a percentage of what they paid in taxes on their income tax. Frequently lawmakers pass a tax that is not deductible, and the Sala IV constitutional court approves of this practice.

With a value-added levy, the tax is paid at each level of production and sale. The supplier of raw materials collects a tax. The producer collected a tax. The distributor collects a tax. The retailer collects a tax from the customer. Since each makes a report to tax authorities, there is less evasion.

Lawmakers are considering changes in the taxing system, in part because central government officials are worried by the heavy inflow of foreign money seeking relatively high Costa Rican interest rates. For business operators, the higher interest rates translate into what they must pay to borrow money.
The business chamber also urged that government expenses, including salaries, be cut.

The chamber support the Chinchilla administration proposal to give the Banco Central the right to assess a stiff exit tax on so-called speculative money that appears to have entered the country from non-resident sources just for the high interest rates. It also urged the government to continue to use moral persuasion to keep rates down.

A value-added tax would replace the current 13 percent sales tax. Lawmakers also would likely expand the base on which the tax is levied. One proposal was launched in 2006. Ms. Chinchilla proposed a 14 percent value-added tax in 2011. And the plan was to assess the tax on the services of professionals and contract workers, such as lawyers, accountants, physicians and dentists as well as on private health care.

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