Government Planning Tax on Financial Services
In its efforts to boost revenue, the administration of Oscar Arias is planning to formally introduce a plan to tax financial services, which some say may mean, in the short term, see a reduction of Costa Rican using banks and preferring to pay cash.

Taxation on financial services is already in place in several South American countries, resulting in uneven results for the economy and controversy over its application.

In principle, the Costa Rica government pretends to tax ¢4 on each ¢1.000 transaction. The objective is to use the tax revenue to pay losses incurred by the Banco Central (BCCR), which is a major component of inflation in the country.

Ministro de Hacienda (Revenue Minister), Guillermo Zuñiga, is keeping mum on the subject for the meantime.

It is not clear if the tax is on all transactions or specific types of transaction and if there will be limit, low and high, and if applies only to colones (local currency) transactions or dollars or both.

What is not clear either is the amount of revenue the tax will generate for the government coffers and how it will be applied.

Jorge Guardua, economic advisor at Deloitte, told La Republica that "the initial impact will be a great recollection of tax, but with time it will evaporate as consumers defer using cheques and plastic, preferring to use cash."

A concern if that happens is a reduced than expected revenue from the tax and the danger of financial institutions losing track of financial transactions, an important source of information for banks.

The tax will place an additional burden on Costa Ricans as they will be end up paying more, paying for each transaction and then for higher prices of services as undoubtedly the tax will mean high costs to business.

Noman Solano of ICS Consultores believes that not only individuals but small to medium sized companies will move to paying cash to suppliers and employees instead of using the cheques and electronic banking systems.

A concern if that happens is security. If people stop using banking services and begin to carry large amounts of cash in the pockets, it will increase assaults and muggings.

Currently, a large number of employees prefer to use direct deposit and use plastic to make their purchases and suppliers get paid by cheques and/or electronic payments.

If that all stops, banking experts say that banking services will be more costly as banks have less resources to operate with.

The South American countries already applying a financial tax is Perú, Bolivia and Argentina. In the case of Argentina, the IMF has asked the government to withdraw the tax, while in Perú and Bolivia, the negative impact of the tax continues.