Sales tax enforcement needs series of expensive stings

Dear A.M. Costa Rica:

Most European countries rely on their value-added sale tax (vat tax) to generate the bulk of their revenues.  It is easy to enforce and those who consume more, pay more, as it should be.  Everyone pays the sales tax, even criminals and drug dealers.  Wow, what a great tax.

It is a tax which is not targeted to any minority group like cigarette smokers, liquor purchases, luxury home owners, etc.  It just targets consumption and no one ever seems to complain about sales taxes.

The sales tax is massively evaded in Costa Rica.  Everyone knows that.  Just about any small shop or store will sell you anything without collecting the sales tax from you.  If you ask for a factura timbrada, they are happy to provide you with a receipt if the consumer wishes to pay the 13 percent tax.  Well, I ask you, how many customers are going to do that.  Like next to none.

To enforce the sales tax is quite simple.  Simply hire about 30 to 50 agents to go around the country and randomly select small shops to purchase items from.  Visit those small businesses most likely to not charge the sales tax. Everyone in Costa Rica knows who they are.  Simply send two agents to these shops, and if the shop or business sells you the product or service without automatically giving you a factura timbrada receipt, immediately slap them with a $1,000 fine or more.

By not automatically providing a factura timbrada to customers, the business is evading two taxes, first the 13 percent sales tax is not collected and paid and the second tax evaded is the revenue from the sale which is more than likely not being included in the business tax return at a 30 percent tax rate.  No receipt, cash sales, classic tax evasion.

When news of this random enforcement gets around Costa Rica, as it will like lightning, I suspect the government will be flooded with money within days.  Everyone will start paying the sales tax.  Plus, as an added bonus, businesses will have to start paying the 30 percent tax on all of their revenue.

From my own personal experience buying various products and services in Costa Rica, I suspect as little as 20 percent or less of the sale tax is being collected and paid from these small businesses and service providers.

Then, if the government needs even more money, simply raise the sales tax to 14 percent etc.  Same enforcement, same rules, no new expensive enforcement needed.

Edward Bridges
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