What is the tax reform Bill ?
The Costa Rican legislature is currently discussing the approval of legislative bill #20.580 known as the “Law to Strengthen Public Finances”. The purpose of the bill is to increase tax revenues for the government and implement cost containment measures.
Among the proposals is the creation of a Value Added Tax (VAT) that would now apply to all goods and services in Costa Rica with a tax rate of 13%. The public sector employee unions object the imposition of the VAT tax on the basic and essential food items. They also object the cost containment measures of the law which would freeze wage increases and salary bonuses to public sector employees along with the pension schemes.
How about the Financial Deficit of Costa Rica ?
The government of Carlos Alvarado has backed the tax reform bill which has been under discussion in the legislature for a couple of years. The Costa Rican government budget for 2019 grew 17% above the previous year. More than 50% of all payments made by the government are going toward debt repayment and pension payments. The government continues to borrow funds to meet these obligations. However the lack of fiscal reforms is hurting the credit rating of the government and hence their ability to borrow additional funds to meet current obligations.
The government is pushing this tax reform bill as the “solution” to the fiscal problems and is lobbying the new members of Congress to approve it. The public sector employees have opposed the tax reform bill and hence the current dispute between their unions and the President and Legislature.