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Commission Attempts To Salvage Tax Plan

March 31, 2006

Legislative Assembly President Gerardo González this week sent the tax plan, whose approval the Constitutional Chamber of the Supreme Court (Sala IV) ruled unconstitutional last week, to a commission that will examine the flaws outlined in the justices’ decision.

Meanwhile, President Abel Pacheco, President-elect Oscar Arias and other leaders are waiting to see whether the plan, which would overhaul the country’s tax system, can be resuscitated.

The legislators on the Constitutional Consultation Commission have 10 days, starting Monday, to re-examine the legislation and make a recommendation to the rest of the assembly regarding the plan’s future, according to the daily La Nación.

Last week, the Sala IV ruled that the assembly violated the Constitution by applying a special “fast-track” procedure to the bill, and also by deciding it needed a simple majority, not a two-thirds majority, for approval (TT, March 24). The ruling followed the passage of the bill in first debate after nearly four years of controversy.

Pacheco, who has maintained throughout his administration that the tax plan is crucial to solving the country’s fiscal crisis, said this week that he’s still hopeful the Permanent Fiscal Reform Package can be rescued.

He added that the lack of a tax reform measure is partly responsible for Costa Rica’s dive of three places in the international business-climate ranking by The Economist. In the last ranking, in 2001, Costa Rica ranked 43rd in the world in the magazine’s ranking; the most recent ranking, based on 2005 data, puts the country 46th, La Nación reported this week.

Arias said Monday, following his meeting with Pacheco (see separate story), that there’s still a possibility the commission will correct the flaws in the tax plan and return it to the assembly floor for another vote. If, after he takes power May 8, this option appears less feasible, creating a new tax plan may be necessary, he said.

The weekly El Financiero reported that a possible Arias tax plan would likely include higher taxes.

The tax plan now under consideration would increase government funds by an estimated ¢200 billion (approximately $397 million) per year by replacing the sales tax with a broader value-added tax, implementing a modified global income-tax system and giving the government tools to improve tax collection.

 

 

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