As for why the proposed VAT inches up 2% higher than the sales tax it replaces, I don’t know the answer. My guess is that there are two explanations. One is that asking everyone to pay a little more helps sell the tax reform package to those who will be expected to pay a lot more. Since the wealthy don’t like to be singled out for tax increases, spreading the burden around to others is probably smart politics. The other explanation is that the IMF, various bond rating agencies, and other global actors want the higher VAT rate. (Actually, I think most of these outfits want the rate above 15%.) As a small country deep in debt, Costa Rica needs to acquiesce to some extent to these external actors.

Meanwhile, for those concerned about regressive taxation, the bills include a provision for the poor and low-income to receive an annual rebate for part of the VAT they paid. Projections are that 40% of the population will be entitled to these rebates. However, this provision strikes me as almost silly, since people must apply for the rebates online. While some of the 40% probably will, I predict that many won’t. The really poor (usually estimated at around 20% of the population) surely don’t own computers or have internet access, so they’re going to have to trudge to internet cafes and try to figure out how to claim their rebates–not a task that all will accomplish successfully.

But who knows what will happen. Some forecast that the bulk of the tax bills won’t pass anyway, while it’s always possible that the legislature modifies them. The legislature could after all cross out 15% and write in 13% if it wants to. This is just the tax reform package that Solís believes will work, but he’s only one of the two main branches of government required to pass laws, and the legislature could change his bills dramatically or even kill them.

Mal mensaje¡ Many MPs called it a ‘bad message’, despite the
call for meeting today, the majority of deputies did not come. Only 29 deputies were present, and 38 are required for meetings.

Many said that the Citizen Action Party (PAC) only had 2
legislators: Otton Solis and Victor Morales Zapata. The latter said this is a “bad message to citizens”, and considers that they must replenish
this time, “the public deserves it”.
Several MPs justified their absence because of a temporary closure of
the the streets around the Assembly and others said many lawmakers had previously planned tours out of San Jose (beach?). crhoy.com

Yes, the average Tico will pay a bit higher taxes, maybe around $10 more a month when the 15% VAT replaces the 13% sales tax, but in reality 90% of Ticos won’t pay significantly higher taxes. What do they care if the tax bills go up for the other 10%?

Neither were the tax bills ever premised on the promise of better services–nor should they be. The intent of the bills is to improve tax compliance and increase tax revenues (in order to help close the gap between the government’s income and its expenditures). Nowhere was an improvement in services promised, and it’s a silly promise. Costa Rica is trying to pay for the services it already provides. Improving services is going to take a lot more than these tax bills.

So, you know, WTF. The most important findings of the survey are that Ticos don’t want government spending cuts and are unmoved by the rhetoric about so-called mega salaries.

But it’s no real surprise that 90% of Ticos would support tax increases that the other 10% will pay for if there are better services. Who among the 90% wouldn’t take that deal?