• Costa Rica Real Estate

Chinchilla’s team presents ‘solidarity’ tax reform

January 18, 2011

President Laura Chinchilla’s tax system overhaul, which was presented to legislators on Monday, could help raise over $100 million and ease the country’s distending tax deficit.

Chinchilla called for a crackdown on tax evaders, fewer exemptions, and a switch from a sales tax to a value-added tax (VAT). She also hopes to double the tax on the transfer of goods, and increase a vehicle tax by 10 percent.

Chinchilla also hopes to scare off political opposition to the reform package by labeling it a “solidarity” tax reform, in which the richest 20 percent will pick up the majority (or 60 percent) of the tax burden, and those earning less than $1,300 will not have to pay income taxes.

“Solidarity is the center of the proposal,” said Finance Minister Fernando Herrero. “We are eliminating tax exemptions that benefit the wealthy.”

But the opposition is still clamoring that the tax is unfair.

“The name ‘solidarity tax’ is just to sell it,” said Gustavo Arias, who will represent the left-leaning Citizen Action Party in initial legislative committee debates over the issue. “We think the tax [as proposed] will fall on the shoulders of the people with the least economic means.”

He added, “It’s not that we aren’t in favor of a tax reform. Our party has campaigned for more taxes, but we what need is a tax structure that is fair.”

Arias is particularly concerned about a VAT tax that would be 1 percent higher than the previous sales tax, as even a small tax hike could affect families struggling to make ends meet.

“People don’t even have enough money to pay for basic needs,” Arias said. “With even a small increase in product prices, it will make it impossible [for them].”

To follow the tax reform debate, see the Jan. 21 issue of The Tico Times.

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