Correction:
All taxable income is based annually and not monthly as the following report erroneously stated when first published.


New Tax Plan Expected To Be Law Today
The "Reforma Fiscal" - Tax Reform - should go to second reading in the Legislative Assembly and be proclaimed into law by the end of the day. That is unless an appeal is made before the Constitutional Court, as a opposition to the law have threatened.

The Tax Reform is important for the country in its ability to generate more revenue and tighten tax collection procedures. The current government has been working with the plan for the last three years and in the closing days of the current Legislature, it passed first reading last week, with the support of both the Partido Liberacíon Nacional (PLN) and Partido Acción Ciudadana (PAC) deputies, one of which will form the next government in May.

The Tax Reform touches all aspects of taxation and daily life in Costa Rica like tax on income. Individuals in high paying jobs will have to pay tax on income, but will benefit from an increased the number of deductions for an individual. The Tax Reform law also differentiates between an individual and a corporation, for the purposes of taxation. Currently, the tax rate is one no matter if the taxpayers is an individual or a corporation. By using the cedula system, the different tax amount can be applied to the different type of taxpayer (individual or corporation).

The second impact is the introduction of the "valor agregado (IVA)" tax that would impose a 6% tax on professional services. Currently the sales tax on goods and services is 13%, but most professional services are exempt, like legal and accounting fees.  The IVA would now impose a tax on many professional services, like the GST (Goods and Services Tax) in Canada.

The third impact of the new law would be in the collection of taxes. The Tax Reform will give tax collectors tools of enforcement and collection to increase state revenues. Now, many taxpayers, both individual and corporate, take advantage of the lax tax collection capacities of the Ministerio de Hacienda.

The Tax Reform bill reinforces the Código de Procedimientos Tributarios and the creation of the Dirección Nacional de Tributos (DNT), a department specialized in tax collection and enforcement, that groups the current Policía Fiscal, Tributación Directa and Aduanas.

The fourth impact is to promote economic productivity with the intention of increasing the Producto Interno Bruto (PIB) - Gross National Product - from 6% to 8%.

An important aspect of the Tax Reform is to force the Banco Central (BCCR) to present a four year program that will help reduce losses, as well as a monetary policy that will aim to reduce inflation. The BCCR is independent of the government.

If the Tax Reform bill passes today there is a good chance that it will be ready for publishing in the official government newspaper, La Gaceta, and come into effect as early as May 1.

If the opposition groups file an appeal against the plan to the Sala IV or Constitutional Court, the process would be delayed for at least a month until the court renders a decision and be stalled for much longer if the court decides in favour of the opposition groups. The Movimiento Libertario (ML) has said that is has the legal documents ready to file today (Monday).

IVA and Income Tax
The introduction of the IVA is expected to cause some confusion. The Tax Reform will not change the current sales tax of 13%, what it does however, is impose a 6% tax on those professional services that are now exempt from taxation,  meaning the cost of a lawyer or accountant, for example, will cost 6% more.

The IVA also applies to water and electrical utility bills, however, if the monthly consumption is less that 275 Kw/h, the IVA will not apply. Nor will the IVA apply to education, public transport and health services.

Another important aspect of the IVA is the tax applied to property rents. The IVA will not be applied to monthly rentals that are ¢200.000 colones (us$400.00) or below. Monthly rents above that will be subject to the 6% tax.

For those importing vehicles into Costa Rica, the Tax Reform does not change the previous regulations inherited by the Pacheco administration, which imposes an additional 15% tax on vehicles valued between us$35.000 and us$50.000 or the colones equivalent. The additional tax jumps to 30% when the value of the vehicle is between us$50.000 and us$70.000 and 50% on vehicles valued over us$70.000.

The tax exemptions on motorcycles, vehicles for use as taxis and trucks (except pick-up trucks) will continue the same as well as the taxation on casinos Sportsbooks will however be required to be registered by the Ministerio de Economía y Comercio (MEIC), which will be subject taxation depending on the number of employees.

For individuals with monthly incomes between ¢2 and ¢4 million colones, the income tax will be 5%; for those earning between ¢4 and ¢8 million colones monthly the income tax is 12%; increasing for high income brackets to a maximum of 30% for those earning more than ¢30 million colones per month.