Changes in tax law to target evasion and avoidance

The nation’s tax collector said Thursday it is introducing legal reforms to reduce evasion as well as avoidance. Avoidance generally is defined as legal manipulations to reduce the tax bill.

The text of the bill is not available, but a summary said that one change would require that an individual or corporation that needs to conduct business with a public entity be current with tax obligations and with documents that should be presented to the Ministerio de Hacienda.

This could include the annual tax reform, quarterly tax reports, monthly sales tax reports, employee withholding reports and a multitude of other reports that are required.

The mechanism whereby these filings would be verified was not explained.

In addition, any person or corporation that seeks a patente or business license from a municipality would have to demonstrate a registration with the Dirección General de Tributación, the tax collecting agency within the ministry.

The summary also said that the sales tax would be levied on any rentals for less than a month in order to avoid the proliferation of tourist hospitality that competes with hotels and formal lodgings.

The action is aimed at condos and vacation homes that are rented short-term, frequently by absentee owners. Such transactions are supposed to generate sales tax now, but only infrequently is it paid. One argument is that the current law is too vague. The ministry probably will provide explicit wording to cover such short-term arrangements.

The update also will require vendors to accept credit cards equal to cash. Those who do would receive a slight discount by a reduction on their sales tax bill to cover the paperwork. The tax agency likes credit and debit cards because the transactions can be tracked. Many transactions are done off the books now to avoid sales tax payments, the so-called resident discount.

The proposed legal changes also would require private and public banks to demand an income tax return as proof of income for loans and other financing. This means the applicant would have to have filed a return. Certification by private accountants would not be accepted.

Some of these changes already have been mentioned as the Luis Guillermo Solís administration seeks to reduce the annual government deficit, which now is at 2.5 percent of gross domestic product. The new president beefed up the power of the ministry by naming his first vice president, Helio Fallas, to head it.

Fallas said in a statement accompanying the summary that evasion and avoidance amount to about 60 percent of the tax money actually collected, according to a ministry study. He said that in 2012 fraud amounted to 7.75 percent of the gross domestic product.

Tributación is now involved in a dispute with the tourism sector over whether the law requires sales tax to be levied on admissions to national parks and tourism activities. Once again the law is vague and subject to interpretation. Presumably specifics on this point also will be submitted to lawmakers.

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