Costa Rica needs to transform the current general sales tax into a modern, broad-based value-added tax (VAT) that cuts services, an increasingly large sector in the country.
It should also raise the tax rate -currently 13% – to promote a balance in the budget.
These are just a couple of recommendations made by the Organization for Economic Co-operation and Development (OECD), a multilateral body that the country aspires to join.
Both suggestions were presented on Tuesday by the economist Bert Brys, representing the multinational entity. The expert explained the results of the Fiscal Policy Analysis: Costa Rica 2017, a study that was made at the request of the country.
The proposal is similar to the one made recently by the Ministry of Finance, which suggested raising it to 15%.
The OECD study also recommends that the country moves away from excessive allocation of specific destinations for tax revenues and reduce tax exemptions.
In addition, the country should rebalance the combination of taxes, moving away from social charges towards VAT, income tax and environmental taxes.
It is recommended that the base of companies that contribute to income tax be expanded, with measures such as taxing the income from foreign sources and dealing with evasion and avoidance with the reinforcement of the tax administration.
Brys explained that Costa Rica has a similar income level to the average in Latin America, but that is insufficient compared to the level of expenditure of the country.
According to the agency, the Costa Rican tax system does not contribute to a redistribution of wealth in society or reduction of inequality, which are purposes of a modern tax system.