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Luxury Home Tax Evasion at High Level

March 26, 2010

Tax administrators have yet to fine any of the estimated 7,000 homeowners who have failed to pay the new solidarity tax on luxury homes.

The tax was introduced in October 2009 as a way to finance low-income housing and slum eradication. By increasing the taxes paid by owners of homes valued at $190,000 (¢100 million) or more, government officials hope to raise $23.7 million more a year.

But the deadline for filing taxes came and went. And, even with a 15-day extension that moved the deadline to Jan. 15, only 30 percent (roughly 3,100) of the owners of an estimated 10,000 luxury homes have paid the tax to date.

“We do not understand the reasons why the level of compliance wasn’t higher,” wrote Tax Administration Director Francisco Fonseca in an e-mail to The Tico Times. “We hope the level of compliance improves considerably … but we are faced with a tax that is based on self-determination (of the tax to be paid), which means the initiative to contribute is borne by the contributor.”

In general terms, three factors influence taxpayer compliance, Fonseca said, adding that these include whether information and help for paying the tax is readily available, the perceived risk of not complying, and the belief that government entities will enforce the laws.

“Studies on the topic are abundant but, because it’s an issue of sociology and human nature, there is no definitive answer about which of these three factors has the greatest impact,” Fonseca said. “All I can say is that these three factors, taken together, will explain why here – and in any other part of the world – the phenomenon of tax delinquency exists.”

For Bob Klenz, a resident of Dominical on the Central Pacific, and others like him, the process of trying to pay the tax was enough to deter anyone at first.

“I am not against the tax. It’s just that they make it impossible to comply with it,” he said, explaining that, in order to file the tax declaration, one must have a cédula (Costa Rican ID) and, to pay the tax, a local bank account, the opening of which presents a challenge for any foreigner. “What they make you go through is absolutely ridiculous” (TT, Dec. 18).

Asked whether the delinquency rate in paying the tax is higher among foreigners or nationals, Fonseca said nationality doesn’t make a difference.

“Just like those taxpayers (both nationals and foreigners) who have paid, we can also identify foreigners and nationals who have not complied with either the presentation of the declaration or the payment of the tax,” he said. “We cannot say that payment or nonpayment has been more prominent among either group.”

For those who missed the Jan. 15 deadline, the fine being applied is up to 10 times the original tax (see side box), plus interest. One who owns a home valued at ¢100 million ($190,000) to ¢250 million ($475,000) would pay a minimum fine of $4,750.

Fonseca said he is doing what he normally does to collect from tax delinquents. First, his department identifies the taxpayers who aren’t in compliance, and then his office contacts them. If taxpayers continue to evade payment, the Tax Administration will inform them of additional sanctions.

 

Residences valued between ¢100 million ($190,000) and ¢250 million

pay .25 percent of property value

Homes valued at more than ¢250 million and to ¢500 million pay .30 percent

Homes valued at more than ¢500 million and to ¢750 million pay .35 percent

Homes valued at more than ¢1,000 million and to ¢1,250 million pay .45 percent

Homes valued at more than ¢1,250 million and to ¢1,500 million pay .50 percent

Homes valued at more than ¢500 million and to ¢750 million pay .35 percent

Homes valued at more than ¢750 million and to ¢1 billion pay .40 percent

Homes valued at more than ¢1 billion and to ¢1.25 billion pay .45 percent

Homes valued at more than ¢1.25 billion and to ¢1.5 billion pay .45 percent

Homes valued at more than ¢1.5 billion pay .55 percent

 

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