Expats need not pack their bags over tax reform

The government’s tax proposals, published Tuesday, certainly got the attention of expats.

Most who wrote A.M. Costa Rica Tuesday wanted to know details that still are unavailable.

The biggest question is will the government tax pensions and other expat income at 15 percent as it comes into the country.

As the news story pointed out, the proposals may be dead on arrival at the legislature. La Nación, the Spanish-language daily, said the proposals had little backing in the legislature and then consigned the story to the depths of the electronic edition.

The proposal to tax money entering the country has been proposed in the past. Government officials are really not targeting the Social Security pensions of U.S. expats here or funds being brought into the country to purchase real estate.

They are after Costa Ricans who have substantial funds abroad in order to dodge taxes here.

The Devil is in the details, and the legislative department in charge of actually writing approved bills sometimes creates unintended consequences. Such was the case with the 2010 immigration bill that was designed to allow tourists to renew their visas for an additional 90 days with the payment of $100.

This would have benefited tourism and also snowbirds who want to stay more than the permitted 90 days. But once the bill was enacted into law, the phrasing was such that those holding a 90-day visa were precluded from renewing it that way.

The lesson is that the legislature and its staff must be watched closely.

Certainly some lawmakers are not fans of foreigners. Such feelings run deep in some Costa Ricans. But expats who wrote Tuesday that officials were trying to force them out of the country were in error. The better answer is that those preparing the measure for presentation to the legislature do not think of all the consequences.

Even when the bill gets to the legislature, there are extensive hearings, and lawmakers make changes and sometimes even approve the replacement of the entire text. Advocates for the expat point of view will have a chance to testify. And the wording of the proposed bills is studied closely.

Some expats also were concerned by the proposal to tax medical care. The government is trying to get medical professionals to pay the taxes they really owe. That is why tax refunds would be made to those who pay with a credit or debit card or other electronic means. The government wants to keep track of the transaction. Too many professionals, physicians, lawyers, accountants and others, do not declare all their earnings.

Another expat raised this point:

“History has proven that when taxes are raised to increase revenue to the government usually the revenue falls far short of expectations,” said George Toth in an email. “An example that sticks in my mind was the windfall profits tax in the late 70s in the U.S. It failed to raise anywhere near what was expected and actually reduced the gas availability.

“Perhaps the government needs to look at how other successful tourist areas are handling the tax structure so they do not hurt the people that depend on tourism for their livelihood. I would hate to see them punish those that can least afford it.”

An online financial news source noted Tuesday that no matter what the government does, the people will pay the taxes. The government says it has crafted the proposals to protect low- and middle-income residents. But when taxes are raised on large corporations, as the plan proposes, the firms have no alternative than to raise prices.

As expat Larry Worsham pointed out in his email citing the government income tax claim:

“Since the new taxes won’t affect 97 percent then only 3 percent of the population, and I’m rounding it up to five million for ease of calculating, will be paying the 1.5 billion dollars. That means that 150,000 taxpayers will each be paying an average additional $10,000 per year. That’s a pretty steep increase for those affected.”

As A.M. Costa Rica pointed out Monday, President Luis Guillermo Solís has an almost impossible problem in that social unrest would develop if he cuts public employee salaries and jobs. Meanwhile the central government deficit is increasing.

The legislature is likely to act slowly, if at all, and the tax package as presented probably would not do much to solve the deficit.


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