Costa Rican Congress, President Alvarado approve controversial tax reform

The Costa Rican Congress on Monday approved a controversial tax-reform project with which the government seeks to contain a growing fiscal deficit.

The drafted law, “Strengthening public finances,” was approved in the second and last debate with the vote of 34 legislators in favor and 17 against. Hundreds of opponents of the initiative demonstrated outside the headquarters of the Legislative Assembly.

Six legislators abstained from the vote.

President Carlos Alvarado announced Monday evening on Twitter that he was “at this very moment” signing the bill. The law will become active once it is published in La Gaceta, the official government newspaper.

En este momento firmo la Ley de Fortalecimiento de las Finanzas Públicas. Agradezco a quienes han apoyado al Gobierno de la República en este esfuerzo, en especial a las diputadas y los diputados que lograron consensuar una mayoría para hacerlo realidad.

— Carlos Alvarado Quesada (@CarlosAlvQ) December 4, 2018

Alvarado celebrated the vote and predicted “a stage of optimism, hope and certainty” for the country.

“With the approval of the reform today, Costa Rica has avoided a crisis and takes a step that brings stability and confidence,” he wrote.

Con la aprobación de la reforma fiscal el día de hoy, Costa Rica ha evitado una crisis y da un paso que trae estabilidad y confianza. pic.twitter.com/m9y5cCs7IL

— Carlos Alvarado Quesada (@CarlosAlvQ) December 4, 2018

Public-sector unions carried out a strike beginning Sept. 10 against the reform, alleging that the bill placed undue burden on the lower and middle classes.

Although the strike has not been formally lifted, most public workers have returned to their jobs.

The reform seeks to contain an explosive fiscal deficit that in 2017 reached 6.2 percent of the gross domestic product (GDP) and would have reached 7.2 percent had the law not been approved, according to the Central Bank.

The project replaces the current sales tax of 13 percent with a value-added tax (VAT) of the same percentage. The VAT taxes some goods and services that have previously been excluded.

It also places a 1 percent tax on the products of the basic basket (canasta básica), a set of basic food products such as rice and beans, with proceeds from the tax being earmarked for social programs.

Congressman José María Villalta said the approved bill “does not make the necessary reforms to reach tax justice, but it does impose taxes on medicines and food.”

Fellow legislator Enrique Sánchez, of President Alvarado’s Citizen Action Party (PAC), said the vote closes “a complex but strictly necessary discussion we assumed with the responsibility of knowing that Costa Rica needed this reform.”

Read more in The Tico Times about the tax reform: 

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