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(506) 223-1327        Published Wednesday, Feb. 22, 2006, in Vol. 6, No. 38          E-mail us    
Jo Stuart
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An analysis of the tax plan (2)
Value-added tax rate can be increased easily

By the A.M. Costa Rica staff

Expats here can expect to pay more with a new value added tax than they did under the current sales tax.

But the real danger is the ease with which lawmakers can raise the rate. The value-added tax is set in the proposed tax reform package at 13 percent.

By comparison, value-added taxes in the European union range from 25 percent in Denmark to 15 percent in Luxembourg.

But most consumers will not see 13 percent. They will see on their retail bill only the tax on the "value added" by the retailer. The rest of the tax will be hidden as a cost of the goods.

But expats also will have to pay a 6 percent tax on visits to physicians, accountants and architects and the services of lawyers and notaries. The current sales tax is not levied on professional services. There would be a 6 percent tax on rents more than $150 a month.

Expats typically need lawyers and notaries for the purchase of real estate and to make applications for residency here. The law is silent on the services of real estate brokers, although as a professional, brokers probably will have to collect a 6 percent levy on their sales commissions and other services.

In the United States, one of the biggest opponents of a value-added tax is the conservative Heritage Foundation. Daniel J. Mitchell, a research fellow there, says one big disadvantage of a value-added tax is that such a levy triggers more government spending and higher tax burdens and also slows the economy and destroys jobs.

Such concerns are strongly linked to political philosophy. Many here favor a large government that provides services to the citizens.

But there can be no argument with another concern expressed by Mitchell in a published report. A value-added tax imposes heavy administra­tive costs on businesses and taxpayers. Now only retail vendors file sales tax reports each month. The system is easy. The purchaser pays 13 percent of the cost of the goods.

Under the proposed value added tax, every business in the supply chain from raw material producer to manufacturer, wholesaler and retail outlet pays 13 percent on the "value-added." 

To determine this amount can be a knotty problem in accountancy. There is no doubt that more firms will be contracting more accountants and bookkeepers. And paying 6 percent tax on their services.

In addition, there must be a comperable increase in the number of employees in the
government tax department to keep track of

A.M. Costa Rica/Saray Ramírez Vindas
Francisco de Paula Gutiérrez strongly endorses the administration tax plan in a talk Tuesday.

paperwork, collections and the shear number of new individuals and companies that must register under the proposed new law.

Government officials strongly favor the value-added tax.  Francisco de Paula Gutiérrez Gutiérrez, head of the Banco Central, praised the initial vote on the measure when he spoke at Casa Presidencial Tuesday.  They see it as a way to pay off the nation's staggering foreign debt and balance the budget.  President Abel Pacheco has been pushing for the entire tax plan for four years. The estimate is that the plan will raise $500 million in new money for the government, if it is approved in a second round of voting.

In Costa Rica, businesses likely will take steps to avoid paying the tax. Cheating on the current sales tax is a national sport. In other nations, the underground economy increased when a value-added tax was implemented. Professionals are well situated to ignore the tax as they practice their specialities because there is little paper trail.

Curiously, one of the occupations exempted from the value-added tax is that of shoeshine services. It was clear to lawmakers that the country had neither the ability or the will to track down all the tiny independent businessmen who buff loafers in Parque Central.

Even left-leaning citizens have a reason to be displeased by the value-added tax. Lawmakers did exempt modest amounts of electricity, water and food products that make up the basic nutritional basket. But the tax still could be considered regressive in that everyone pays the same value-added tax regardless of other income.

Lawmakers have thrown a bone or two to those with this opinion.  The exemption of a minimal amount of rent is one such effort. There also are extra taxes associated with luxury automobiles in the same bill.  However, the measure does not go very far to meet President Pacheco's stated desire to have "rich people pay like rich people."

Companion tax bills are far more unfriendly to those with money.

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San José, Costa Rica, Wednesday, Feb. 22, 2006, Vol. 6, No. 38

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Truck device detects load
of wine being opened

By the A.M. Costa Rica staff

The Ministerio de Hacienda reported that one of its satellite detectors detected an irregularity in a truck that had recently left the Pacific port in Caldera.

Officials said that Monday morning a load of wine left the port.  Soon after, an alarm sounded at the Ministerio de Hacienda when the truck left its approved route and the door to the container was opened.  Workers at the ministry alerted the Policía de Tránsito, and the truck was stopped some 90 minutes later, the ministry said. 

Officials at the ministry advanced the story as a record of the monitoring devices functioning properly but Panamanian truckers are not convinced.  They have been blocking the Paso Canoas border for seven days.  The truckers contend that the devices, made by Marchamo Electrónico S.A., violate earlier regional agreements.  Transportation officials from both countries have been meeting in San José to work the problem out.

Costa Rica contends that the devices keep goods that are supposed to pass through Costa Rica from stopping here without payment of the required import tax.  The devices also track cargo that is going to bonded warehouses in the Central Valley.

Costa Rica is on a major route between Panamá and North America, and traffic is expected to increase under terms of various free trade treaties that are either approved or still are being negotiated.

The smart chip in the device allows the trailer or container to be tracked by satellite and warns officials if the load is opened or if the truck deviated from its approved course. The idea is to keep the load sealed during the entire time it is within the national territory or until final delivery. Officials did not say what finally happened with the load of wine.

Soccer president visits
Cartaginés fan Pacheco

By the A.M. Costa Rica staff

Franz Beckenbauer, president of the organizing committee of the World Cup 2006 in Germany, made a visit to Costa Rica where President Abel Pacheco told him: “For us Costa Ricans who, with almost no exception, love soccer, your presence here is an honor.”

Beckenbauer answered that he hoped Costa Rica won all their matches in the World Cup except the first one against Germany.  Beckenbauer has won the tournament both as a player and as a coach. 

Pacheco, predicted a tie between the two teams.  Germany faces Costa Rica in the first match of the tournament June 9 in Munich. 

After his meeting with Pacheco, Beckenbauer visited the “Proyecto Goal,” in Alajuela.  That project is organized by Fédération Internationale de Football Association, the sponsor of the World Cup. Pacheco also took advantage of the visit to celebrate the 100th birthday of his personal favorite team, Club Sport Cartaginés.

“I keep in my heart the firm hope that one day, we will be able to take part in the joy of winning a new national championship and remember the glory of the past,” Pacheco said.

Beatles music scheduled
for plaza this Saturday

By the A.M. Costa Rica staff

The Beatles may be long gone but their music will thrive once again at the latest in the Museos del Banco Central's “Concierto en las Gradas.”  The third concert in the series will feature Grupo Revolution which will present works of  the 60s pop sensation.  The show starts Saturday at 11 a.m. at Plaza de la Cultura.  Entrance is free. 

Although the Beatles were a quartet, Revolution is made up of five members, Hayden Ceciliano, Randall Moya, Roberto Sancho, Eduardo Cole and Cristian Chacón.  The group has been performing together for five years and has played throughout Latin America. 
The show is scheduled to last for an hour.  The Conciertos en las Gradas is part of a program for the benefit of the public organized by the Departamento de Educación de los Museos. The museums are below the Plaza de la Cultura. 

Two robbery suspects held
after stickup in Escazú

By the A.M. Costa Rica staff

Officers with the Fuerza Pública in Escazú arrested two men Tuesday who are accused of stopping two women in San Antonio de Escazú, threatening them with a .38-revolver, stealing their handbags, then speeding away on a motorcycle, officers said.

Officers said that the two suspects, identified by the last names Vindas Vargas and Madrigal Rojas, had the victim's belongings when they were arrested.  Neighbors who witnessed the incident called police and a short time later, officers found two men on a motorcycle matching the callers' descriptions, officers said. 

Police chased the men and finally stopped them in Alajuelita, officers said. 

Immigration creates
new form of ID cards

By the A.M. Cost Rica staff

Pensionados and rentistas in Costa Rica have a new form of identification in the future, but it will cost them. $114 to be exact.

The idea is to have one type of identification instead of the six different types in use now. The new identification is a plastic card, much like a driver's license or the cédula de identidad that Costa Rican citizens carry. The card will be encoded with electronic information.

The resolution and the cost appeared in La Gaceta Feb. 14 and was the subject of an announcement by the Dirección General de Migración y Extranjería Tuesday. The rule went into effect Friday.

Refugees and others get a better deal. They have to pay $14 and 2,500 colons, about $5, according to the announcement. They used to get their identification papers for free. Lost or stolen identifications now will cost $28. In all cases, the money is paid to a national bank and just the receipt is brought to immigration for renewal.
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San José, Costa Rica, Wednesday, Feb. 22, 2006, Vol. 6, No. 38

They voted for treaty then got campaign cash, Public Citizen says
D.C. report slams CAFTA backers as being bagmen

By Jesse Froehling
of the A.M. Costa Rica staff

A report circulating by Washington, D.C.-based opponents of the free trade treaty suggests that some of the U. S. congressmen who voted yes on the pact, might have done so in exchange for campaign donations. 

The handful of representatives whose votes led to the narrow passage of the controversial Central America Free Trade Agreement last year have since received a total of $2.8 million in corporate campaign cash, said a new report released Tuesday by Public Citizen’s Global Trade Watch division.

The report was embraced in Costa Rica by opponents of the free trade treaty and is being circulated via the Internet.

“The Bush administration was able to pass the deal 217-215 in the House of Representatives only after a coalition of the United States’ largest corporations seeking to exploit CAFTA’s terms launched a full-scale seduction operation,” the report alleged.

The Public Citizen, which released the report, is a congressional watchdog organization founded by Ralph Nader.  It has released several anti-trade reports in the past. 

The report said it scrutinized 30 members of the U.S. House of Representatives who voted yes on the treaty although such a vote seemed to go against the desires of the constituents.  The report alleges that the “CAFTA 30,” as they are called did so in return for large campaign donations.     

In addition, the report says that many of the representatives who allegedly took campaign money for a vote, are now feeling the wrath of their constituents. 

“While money may have been able to buy CAFTA, this report shows that money cannot buy the voters’ love. Thus, as described in this report, many among the 'CAFTA 30' now face new political challengers who entered the election fray as a result of these representatives’ CAFTA betrayals,” the report said. 

The report is careful to cover itself by stating early that:
“Of course, it is impossible to know definitively if any member of Congress voted for CAFTA based on an explicit promise of financial reward (or to prove whether any corporate political action committee donated to campaigns explicitly on the basis of a congressperson’s pledge to support CAFTA).”  But the insinuations run strong.

According to the report, 22 of the CAFTA 30 received unusually large donations from political action committees of large, pro-treaty organizations.  However, seven representatives received less money after the yes vote, an anomaly the report doesn't fully explain but seems to chalk up to political arm-twisting. 

Republicans Jim Gerlach and Mike Fitzpatrick, both of Pennsylvania, voted for the treaty and were the top two recipients of Republican Party money in the 2005 cycle, the report said.  It added that anti-CAFTA sentiment in the state runs especially high since the loss of jobs resulting from the North American Free Trade Agreement.

Also, Richard Pombo, a Republican from California, was seen talking fiercely with Tom Delay, the former house majority leader from Texas, the night the treaty passed, the report said.  A moment later Pombo stormed out of the chamber.  10 minutes later, he returned and changed his vote to yes, the report said. 

Another trend the report follows is that of private donations that came from out-of-state donors.  Besides Gerlach and Fitzpatrick, Melissa Bean, a Democrat from Illinois,  received large, private donations from the Washington D.C. area after the treaty passed, the report said.     

The Democrats who voted yes, may have done so in exchange for post-vote fundraisers, the report said.  10 of the 15 Democrats, Melissa Bean (Illinois), Jim Cooper (Tennessee), Norm Dicks (Washington), Henry Cuellar (Texas), Ruben Hinojosa (Texas), Jim Matheson (Utah), Greg Meeks (New York), Dennis Moore (Kansas), Ike Skelton (Missouri) and Edolphus Towns (New York) who voted yes on the treaty received fundraisers from business groups and individual companies, the report said.

Meeks visited Costa Rica before the vote and posted a statement on his Web site  before the vote that said he would support the measure.

New law would keep convicted child molesters from working with kids
By Saray Ramírez Vindas
of the A.M. Costa Rica

The government's child protection agency is promoting a change in the law that would keep those convicted of crimes against children from later working in jobs in which they have contact with youngsters.

Rosalia Gill, the minister of Niñez and the head of the organization, outlined the proposal Tuesday at a session in Casa Presidencial. She said that the proposed law would require persons working as teachers and in the schools to present evidence of their police record.

Several teachers this year have been exposed as persons who had served time for crimes against children. The Ministerio de Educación Pública said it was unable to keep the people from filling the jobs because no law prevented the former convicts from working with children.

Minister Gill also noted that her agency, the Patronato Nacional de Infancia, had created a new Web site which contains information on various aspects of the law and the agency's programs.

She said that the 911 telephone service has generated 18,388 reports of high risk youngsters in 2004 and 19,749 reports in 2005.

She is likely to be replaced when the Pacheco

A.M. Costa Rica/Saray Ramírez Vindas
Minister Gill shows off new Web site
government leaves office in May, so her talk also was a summary of what has happened in her agency over the last four years. Pacheco has congratulated her in the past for resurrecting the agency.

She said that in 2005 6,141 youngsters were placed under the protection of her agency.

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San José, Costa Rica, Wednesday, Feb. 22, 2006, Vol. 6, No. 38

Presidential winner to be declared today
Solís cites irregularities, but Tribunal says 'Grow up'

By the A.M. Costa Rica staff

Presidential candidate Ottón Solis took to the television Tuesday night to demand a second recount of some 700 polling places and claimed that 5,000 ballots had vanished.

Solís said he was very concerned by what was going on and said that since the Feb. 5 election day he has been hearing reports of irregularities.

Shortly after his speech, the Tribunal Supremo de Elecciones issued its own statement and basically said Solís was off base. There were no missing 5,000 ballots and the only problem requiring a recount of a recount now was one polling place in Pococí de Limón where some 16 ballots were mixed with votes for deputies and provincial regidores, the Tribunal said.

The Tribunal said that it was sure that the new government that takes office in May will be the one getting the most votes and that it hoped that for the good of the country all those involved in the electoral process will have the maturity and responsibility to accept the result. This last was seen as a slap at Solís and his Accion Ciudadana party executives who have been raising a number of objections involving various polling places.

Solís seemed to be urging that the election be annulled, as least as far as the two leading candidates were concerned. The result would be a runoff in which Solís would seem to be favored over Óscar Arias Sánchez, the candidate of the Partido Liberación Nacional.

Meanwhile, the Tribunal said that it finished Tuesday
 a recount of 5,912 polling places, and there only was 251 polling places left to recount. All were in the Provincia de Limón that voted heavily for Óscar Arias. A declaration of the new president-elect is expected later today.

Solís zeroed in during the television talk on the 712 polling places that did not report their totals electronically election night. He said that the hand count had encountered "serious, very serious anomalies and violations of election law." At 100 polling places, he said the registry of voters was not found.

He urged the Tribunal to take another week to recheck the votes and asked Arias to join him in his request.

The Tribunal in its statement discounted the Solís claim that 100 polling places lacked the required registry of voters. Only in 18 cases did the Tribunal have to resort to using alternate documents, it said.

The Tribunal has issued official recount figures piecemeal. However, Solís showed a lead in the votes as the provinces of San José, Alajuela, Cartago and Heredia were recounted. The race narrowed to less than a difference of 1,000 votes Monday when much of Puntarenas and Limón still had to be recounted.

Guanacaste gave Arias more than 10,000 votes more than Solís.

Results from the recount Tuesday still are being tabulated. The Tribunal released them by polling place without grand totals.  However, Arias is estimated to win the election by about 14,000 votes.

Aristide says he plans to return now that Preval is Haitian president
By the A.M. Costa Rica wire services

Former Haitian President Jean-Bertrand Aristide says he hopes to return to Haiti as soon as possible, after nearly two years in exile in South Africa.

Aristide told South African television Tuesday that he is in talks with Haitian officials about his return, now that Haiti has elected a new president. Aristide left the country after a popular revolt in 2004 that brought down his presidency.
Haiti's new leader is former Aristide ally Rene Preval, who was declared the winner of this month's election after a controversial change in the way blank ballots were counted.

Earlier Tuesday, Haiti's chief elections official, Jacques Bernard, fled to the United States after receiving threats and finding his home ransacked.

The United States has denied allegations that it authored or assisted the coup against Aristide.

Our readers' opinions
Letters from our readers are here
Costa Rica has made
a big mistake with tax

Dear A.M. Costa Rica:

Well, Costa Rica is about to drive a death nail into the influx of foreign investment money coming into the country. 

Because your leaders have squandered revenues and pocketed much of it for their own personal coffers, they now are turning to the familiar tax-and-spend tactics of some of the bigger countries.  Now we read today in A.M. Costa Rica that the new tax law has  slipped in a capital gains tax.  That should be the final nail in the coffin for Costa Rica investment money. 

It is unfortunate because much of this money invested in Costa Rican real estate goes directly to the people in  new jobs, and support for local economies from an influx of new residence and tourist.  Many are leaving the U.S., Canada and some European countries to  escape the oppressive taxes in their home countries. 

Your leaders are a bunch of arrogant, uninformed fools and just gave the biggest boost to Panama  tourism and real estate they could have given. 

Is it any wonder that Panama just this year replaced Costa Rica as the most desired retirement destination for expats.  We have friends that were planning on buying some real-estate and eventually moving down here.  We are advising them to look elsewhere if this new tax law passes. 

I guarantee you my investment money is going elsewhere.  Anyone want to guess how much of any new revenue generated from the purposed new taxes
still ends up in the pockets of your elected officials? The only difference is their pockets will be a little fatter this time.  My guess is most of it will end up in their pockets, and two or three years from now you will still see the same horrible road conditions, and your leaders will be moaning about the need for higher fuel taxes and increase in registration and RTV fees with the grandiose idea that the new money once again will go to repair roads.  Great move, Costa Rica.
David K Treadway
Esterillos Oeste

Why was there not more
discussion of tax bill?

Dear A.M. Costa Rica:

“Value-added plan full of new taxes and exemptions” is pretty depressing news, and I don’t even live in Costa Rica.   I visit frequently, and I know folks there, however.  It’s sad to think of CR sinking down into so  much high taxation.  Your article makes the proposed tax laws sound even worse than those in the U.S.
I do have one question: why haven’t the citizens of CR discussed this issue more?  Are they unaware of the expensive consequences of these changes, or has the national Spanish language media underreported it?  Your  article makes it sound like a crushing blow delivered with little warning.

Joe Vines

EDITOR'S NOTE: A.M. Costa Rica has published many stories on the tax bill. Only recently did the proposed tax law survive 1,000s of motions and amendments. Until the form was fixed, it was hard to tell what the law would do.

Jo Stuart
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