Capital gains tax proposed for those real estate windfalls

After having lived in Costa Rica for a total of eight years, it amazes me that no one has proposed a capital gains tax on real estate. I am not sure if a study has been done, but I have seen astronomical gains in land values in the Central Valley and watched as former coffee lands were sold off for development for millions and the sellers becoming quite wealthy and not paying a dime in taxes on these sales.

It is quite clear that President Laura Chinchilla is typical of her predecessors. She serves her masters well, as she has not been able to or is not willing to convince the wealthy in Costa Rica that comprehensive serious tax reform is needed which would include capital gains taxes and universal taxation (so that Ticos’ investments worldwide are taxed locally as well with certain exemptions allowed). VAT, or Value Added Taxes, are a regressive type of taxation that only penalize the poor and working class as the percentage they pay for finished goods represents a much higher percentage of their take home pay than for the wealthy when they purchase the same goods.

In August of 2006, Costa Rica awarded a Mexican subsidiary of an American corporation, Bearing Point, a $26 million contract to modernize the national tax system. With just a quick Internet search, it was quite obvious that Bearing Point had their own financial and legal problems in the United States. In fact, in just the first quarter alone for 2007, the company lost $61.7 million. I prepared a dossier on this corporation’s background prior to this contract being awarded. I took this report to a town hall meeting where a high official in the Arias administration was speaking.

When the meeting was over, I approached this official and explained that Bearing Point was expanding into Latin America because of problems at home and that the government was taking a risk doing business with them. This official was skeptical of my motivations and had me deliver my report to his assistant. The contract was awarded with great fanfare. In February of 2009, the corporation Bearing Point filed for a Chapter 11 bankruptcy and emerged out of bankruptcy as a partnership.

Because of non-performance, the contract between Costa Rica and Bearing Point was terminated by the Ticos in May of 2010, and Costa Rica lost $17.8 million. One report stated that it will cost an additional $34 million to finish the project. The case ended up in litigation.

I think the problems to Costa Rica’s national debt are complex, but the larger problem is that the rich or soon-to-be rich politicians in the assembly are more interested in getting wealthy than taxing their own. Their own greediness is leading to the serious social and economic inequalities in the country, more crime and hopelessness and more and more private security and walls surrounding the rich. Unless they take a hard look at this issue, this unorganized random violence could eventually manifest itself into a serious threat against the established order.

Seth Derish

Editor’s Note: Derish runs a private investigations firm in California and in Costa Rica.

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