Government seeks $1.5 billion with new tax package

A tax package that the central government says it will send to the legislature this week disproportionally affects expats.

The measure would double the tax on transferring real estate, create a 15 percent capital gains tax and levy a 15 percent tax on money entering the country from elsewhere.

Real estate brokerage services and private medical care would be taxed as would hair care, accountancy work and, presumably, repairs by vehicle mechanics and nearly all other services.

The text of the bills still are not available. But the Ministerio de Hacienda released fact sheets. Many lawmakers are skeptical of the proposal for a value-added tax, and bills that get final approval may not resemble the original measure.

The proposal also would tax monthly rentals over 403,400 colons, some $764. The broad value-added tax would increase to 14 percent the tax on services and short-term rentals. The rate would be 15 percent in the second year. Tourism services by firms registered with the Instituto Costarricense de Turismo would be taxed at rates increasing more slowly.

The government proposes value-added tax rebates via a complex electronic system for 40 percent of the population it considers poor. Hardly any expats would be eligible for this.

Fact sheets on the proposals say that 97 percent of the workforce will not be affected by the income tax changes.

A.M. Costa Rica estimated, based on government figures, that the proposals would raise $1.5 billion in new taxes each year.

The government summaries on which this article is based did not clarify the way taxes would be assessed on money entering the country. Many expats receive bank transfers for pensions or they take funds from automatic tellers. These situations are not addressed in the summaries.

There also is the open question of money hacienda081115being transferred into the country for a real estate transaction or other investment.

Although the proposals say that taxes would not be assessed on payments to entities outside the country, there does not seem to be any provision to collect taxes on individuals who live here but are paid through foreign bank accounts. For example, some sportsbooks here pay their employees, particularly illegal ones, through accounts in Belize or Panamá.

The government has never addressed this form of evasion, perhaps for fear of creating unemployment.

The proposed value-added tax would generate  $944 million at the end of three years, according to the Ministerio de Hacienda. The ministry said that it estimates that the new tax would generate 1.33 percent of the country’s gross domestic product. That amount, the total of all goods and services, is estimated at about $71 billion.

The ministry also said that the income tax would generate 0.57 percent of gross domestic product in additional yearly taxes at the end of two years. A.M. Costa Rica estimated that to be $404.5 million.

The doubling of taxes on property transfers and vehicle transfers is estimated to bring in $135 million more each year.

In all, the new taxes would generate about 2.1 percent of gross domestic product each year, according to ministry figures.

That is about $1.48 billion.

The ministry accompanied the fact sheets with a press release outlining the ways the central government had reduced expenses since the beginning of the Luis Guillermo Solís administration. But as A.M. Costa Rica pointed out Monday, the cuts amount to about 2 percent of the annual budget.


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