The central government plans a freeze on 2,500 public jobs as part of the plan to reduce the nation’s budget deficit.
That was one action outlined by Vice President Helio Fallas when he appeared this week before lawmakers. In addition to the vice presidency, he has been named minister of Hacienda, the budget ministry. He also supervises the Dirección General de Tributación, the tax collectors.
He also said the government would be ordering a 20 percent cut in discretionary expenditures in an effort to reduce the budget deficit to 1.85 percent of gross domestic product. The current 6.6 trillion-colon national budget ($11.8 billion) has a deficit better than 2 percent. It was 2.8 percent in 2013.
Fallas specified 23 total problems with income and 55 solutions in appearing before the Comisión de Asuntos Hacendarios. In short he seeks to bring tax collecting up to 14 percent of the gross domestic product and reduce the deficit to zero in 2016.
The minister complained that there is little understanding about the budget situation in branches of the government. There are major outlays for renting computer equipment, office space, vehicle purchases and expenses for trips. These are expected to be addressed in a few months. The government also will seek to use more free software.
The ministry identified tax evasion, tax avoidance and exonerations as the principal problems. In 2011 and 2012 the exonerations from taxes amounted to more than was collected. Exonerations in 2012 were 13.37 percent of the gross domestic product. Income from taxes was 13.18 percent, said the ministry.
The ministry will be presenting bills to permit tax deductions only when the payment has been made to an entity registered to tax authorities. In addition, anyone doing business with the government will not be paid if they owe taxes. Salaries only will be counted as tax deductions if they have been reported to the Caja Costarricense de Seguro Social. Anyone seeking bank credit will have to present a tax return instead of a certification from an accountant showing income.
Except for the rule about credit, these basically are the regulations now.
However, the ministry is expecting the tax income from luxury homes to increase 20 percent. There also will be a study this year and next to eliminate exonerations that the central government does not see as justified. Most exonerations, such as for the Cruz Roja, are in law.
Tributación said that more than 20 percent of larger enterprises report losses on their tax
returns. In 2012 this percentage was 23.5. In 2013 the percentage was 24.5.
The agency said that reform of the tax rates is planned for the end of this year and next year. In addition the agency would like to see a value-added tax instead of the current 14 percent sales tax. These changes require legislative action.
The agency’s plan for electronic invoicing still lacks the technical mechanisms, Fallas said. Tributación has been in discussion with Radiográfica Costarricense S.A., the Internet provider, and Banco de Costa Rica to create an electronic system.
Such a system would require professional and other firms to run their daily invoices through a centralized computer system set up by Tributación. So if a professional such as a lawyer or physician, charges for an office visit, that would be reported when the client or patient makes a payment. The agency expects to make frequent reminders about how much tax is owed. That system is supposed to go into effect next January.
Studies have shown that professionals under report grossly their income simply by not giving official invoices or facturas to their clients.
As for government expenses Fallas gave this summary and he seemed to be talking to lawmakers:
• All new expenses should state a new source of income.
• All new exonerations should identify alternative sources of financing to make up the difference.
• Existing taxes should not be earmarked for a specific governmental use
• No approvals of new expenses would be permitted if there are funds that have not been spent on projects that have not been executed.
Fallas also said that the government would be better off doing some building instead of renting so much office space.
He also said that there would be a revision of the entire tax system in relation to the environment.