Corporate taxes in Costa Rica could be going up. The Costa Rican government is expected to introduce legislation to establish a 30% corporate income tax on medium and large companies.
Otton Solis, head of Costa Rica’s congressional finance committee, is quoted by Bloomberg as stating the proposal should reach the legislature “in the second part of May.” He mentions smuggling and tax fraud as two issues the government will discuss in the meantime.
Corporate tax law was approved in 2011, but, in January 2015, Costa Rica’s Supreme Court ruled certain articles of the law to be unconstitutional. The articles concerned the implementation of the tax, its rates, and sanctions for tax dodging.
According to Costa Rica’s National Registry, 545,000 corporations are registered in Costa Rica.
Also on the government’s agenda is a bill to change the country’s sales tax to a value-added tax and raise the rate from 13% to 17% over the next two years.
“Support is complicated,” Solis told Bloomberg. “The strongest resistance is political, that the government is spending too much,” he said, noting that increasing a value-added tax on basic food items “is going to be controversial.”
After winning a landslide of public support in the 2014 presidential elections, Costa Rica’s government has had trouble translating that success into legislative progress. Divisions within the ruling Citizens Action Party have obstructed the government’s agenda, and a coalition of opposition parties has wrestled control of the country’s legislature from the CAP.
In his recent state of the nation address, President Luis Guillermo Solis highlighted the issue of the country’s finances, stating, “Public debt is a time bomb that we must diffuse.” Solis pointed to US$1.3 billion in reduced government spending during the address.
Costa Rica reduced its first quarter primary deficit to 0.86% of GDP from 0.92% last year and recorded a total budget deficit of 1.5% of GDP through March.