Liberación wants budget cuts before new taxes

ot only Costa Rican business operators and investors are concerned about plans for new taxes. The major opposition party in the legislature spoke out against the plans Wednesday.

Antonio Álvarez Desanti, a leader in the Partido Liberación Nacional, said that his party is not going to permit the country to continue paying more and more taxes without budget cuts by the central government.

Borrowing the title of a famous 1981 book by Colombian author Gabriel García Márquez,  Álvarez said the proposed government package of new taxes was a <Crónica de una muerte anunciada,> the “Chronicle of a Death Foretold.”

The Ministerio de Hacienda Tuesday posted two separate proposed bills that it said it would submit to the legislature in April. One provides higher tax brackets for wage earners and the other is the long-awaited plan for a 15 percent value-added tax.

The government hopes to raise 600 billion colons or about $1.34 billion more with the new taxes.

The proposals come on the heels of a proposed decree to tax money leaving the country for foreign locations by 15 precent. This tax already appears to have been approved by the legislature when it voted in November for the Banca para el Desarrollo, an entity to finance small business. The proposed decree just implements the tax and blatantly says foreigners will pay to finance the bank.

President Luis Guillermo Solís and his first vice president, Helio Fallas, shocked some lawmakers when they presented a budget for 2015 that was 19 percent higher than the previous year. A lot of voters expected Solís to crack down on corruption and excessive spending.

The government deficit, the total of repeated shortfalls by the central government, is approaching $6 billion, and nearly 50 percent of the annual budget is debt service.

This fact has not been lost on international rating agencies, such as Moody’s and Fitch.

The economic situation also has not been lost on business operators. Those who contacted A.M. Costa Rica this week were particularly concerned about plans to put a tax on cash flow out of the country. The proposed decree also says the 15 percent would be assessed on imports.

Fallas, who also is finance minister, has said his agency is attacking evasion as a way to generate more income. But then he announced in mid-February plans to purchase a 5,200-square meter office building for $121.7 million. That plan is on hold temporarily for technical reasons.

Álvarez in his talk before lawmakers Wednesday said that reforms in employment and pensions were needed before lawmakers considered new taxes.

Liberación, of course, held the presidency for the eight years before Solís and did little to eliminate the annual deficit.

Still, business leaders already are talking about who will take the office when Solís leaves in little more than three years. Some already say they support former president José María Figueres Olsen, who served from 1994 to 1998.

Some expats feel they have been blindsided. They purchased luxury homes or condos only to be hit with a special tax. Then there was the tax on corporations that cost many expats an additional amount approaching $400 a year.

Tourism operators are facing an additional tax on most of their operations, thanks to a revision in the current tax law.  The proposed value-added tax would apply a 5 percent tax the first year, but the percent would quickly grow to 15. Some fear the country is taxing visitors too much.cutting021315

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