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Finance Ministry could lower Costa Rica income tax brackets

September 13, 2015

A decrease in Costa Rica’s Consumer Price Index over the past year could mean more of the country’s low-income workers will have to pay taxes next year, and some middle-income workers may have to pay higher taxes.

Finance Ministry officials are evaluating whether to lower Costa Rica income tax brackets because of a 0.74 percent annual decrease in the CPI, the main indicator used to calculate tax adjustments. The ministry updates income brackets every September, which then apply starting Oct. 1, the day the new fiscal year begins.

Currently some 952,000 workers earning a monthly salary of ₡793,000 ($1,460) or less are exempt from the tax, while 242,000 workers make enough to pay income tax. Those with monthly salaries between ₡793,000 and ₡1,190,000 ($2,195) pay 10 percent, and those with salaries equal to or greater than ₡1,190,000 pay 15 percent on income above that amount.

Finance Vice Minister Fernando Rodríguez said Thursday he does not remember a recent period where the country recorded a year of deflation (decrease in price levels of goods and services). Costa Rican law states that, if deflation occurs, income brackets must be lowered accordingly.

Albino Vargas Barrantes, Secretary General of the National Association of Public and Private Employees, said Friday that he’s strongly against what he called “the unfortunate and untimely attempt by the government to reduce the income figure used for calculating tax exemptions.”

The leader of the country’s largest labor union said the decision would be worse than “the government’s equally deplorable decision to yield to the pressures of big business owners,” in reference to some lawmakers who fiercely oppose a series of fiscal reforms that seek to establish harsher sanctions for tax fraud and tax dodging.

Vargas also questioned why, in a period of deflation, the government hasn’t implemented any price cuts on basic goods and public transportation fees.

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