| Pacheco's goals clashing with value-added tax |
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President Abel Pacheco came into office promising to eliminate poverty, which he estimated affected some 25 percent of the country. But he also wanted to eliminate the staggering fiscal deficit. To attempt to balance the national budget, Pacheco’s administration has come forth with any emergency fiscal plan and a long-term fiscal plan. A value-added tax is a key ingredient of both plans. The tax is much broader than the existing 13 percent sales tax it would replace, and administration experts estimate will raise some 100 billion colons (some $276 million) against the anticipated 2003 budget deficit of 250 billion colons. (some $691 million). Just like a sales tax, the value-added tax will be something that the end users, the Costa Rican citizen or resident, will pay, thereby reducing their estimated disposable income in fiscal year 2003 by the same $276 million. That would seem to reduce economic activities and the possibilities
of reducing poverty by action in the private sector. Plus the tax may have
an impact on companies that would locate here, although exported items
would not be subject to the tax.
Earthquake near David
By the A.M. Costa Rica staff Tremors from an earthquake made car alarms sing in unison in San José Tuesday evening. The temblor started at 6:20 p.m. and continued to shake the earth for approximately 45 seconds. Its epicenter was in the southwest region on the Costa Rica-Panama border, close to Golfito and David, Panamá, The intense earthquake claimed the lives of four people and injured others in Panama, according to incomplete reports from there. No fatalities have been reported in Costa Rica. Four residents in Ciudad Neilly sustained bruises and broken bones, and a handful of homes were damaged in Punta Ovita. The U.S. National Earthquake Information Center, located in Denver, Colo., recorded a preliminary magnitude of 5.9, but local news sources said the quake had a 6.2 to 6.5 magnitude |
The value-added tax, as proposed,
would exempt basic foods, recapped agricultural tires, medicines, books
and musical compositions, small amounts of residential electricity use,
international transport, services provided by the Caja Costarricense de
Seguro Social, loans and credit and low-priced housing rentals, among others.
But the tax would cover services that are not now covered, such as medical,
legal and, it would seem, most services provided by business people.
One argument in favor of the value-added tax is that many other modern countries have a similar levy. The European Union insists on a 15 percent minimum tax among its members. The United Kingdom has a 17.5 percent tax, and some countries levy a tax as high as 25 percent. Canada is 7 percent. A similar proposal put forward in the United States has gained favor because its passage might eliminate the U.S. Internal Revenue Service, the tax-collecting agency. A recent action in Europe resulted in an amendment that taxes digital materials that come into an EU country via the Internet. Software makers inside the EU said they were at a disadvantage from companies elsewhere that did not have to pay the tax. The concern is that the tax will grow and grow from the original 13 percent in Costa Rica. In Colombia, a similar tax there raised an average of about 2 percent of the gross domestic product in the early 1980s, but this climbed to 12 percent in 1992, according to a World Monetary Fund report. That’s nearly one-eighth of the national income being diverted to the government. A curious decision by Britain’s High Court raises similar interesting possibilities in Costa Rica. The court ruled in a value-added case that escort services — which employ prostitutes — must render taxes to the Queen. Prostitution is legal in Costa Rica, and there does not seem to be any exception in the proposed emergency law that would prevent sex industry workers from also paying the value added tax The value-added tax typically is applied during the chain of production of a product. The raw material is taxed. The wholesaler pays a tax when he or she buys the raw materials. The retailer pays a tax to the wholesaler as well as a price reflecting prior taxes. And the customer pays all the tax because this is part of the final market price. Each of the individuals and companies in the chain of production or importation must keep good records so they can show the tax auditors their actual cost of acquisition. That may or may not be a bigger headache than the current sale tax. The economic effect of the tax might be obvious quickly. The Pacheco administration is trying to get the emergency legislation passed within the next month, and, as written, the law would go into effect upon publication in the official newspaper. |
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Investigators say that a fraudulent mortgage business scammed Costa Ricans all over the country. Agents raided two offices early Tuesday and arrested five persons they said led on homebuyers with the prospects of mortgages but only did so to snag advanced fees. The Judicial Investigating Organization said that the men placed ads in national newspapers and other periodicals offering credit at low interest rates to finance housing purchases with either colons or dollars. They used two telephone numbers: 256-9696 and 256-6262. When a would-be customer called, the men would present an effective sales talk and later send alleged experts to look over the house that would secure the mortgage. But, according to agents, the men would then seek a deposit to secure the deal. Later they would tell the customers that the loan had been approved but that additional fees were |
required for stamps and other expenses,
said investigators.
Agents said there were at least 10 complaints filed against the men and that the cases cut across social classes and geography of the country. The complaints claim that the men took money but failed to follow up on the promise to provide loans. The money involved ranges from 250,000 colons ($690) to larger amounts. The men maintained two offices, and these were the offices that were raided Tuesday. One was near the Banco de Costa Rica headquarters in the center of San José, and the second was not far away near the Plaza de la Cultura. Agents said they took a number of documents. They identified the men by their last names: Cordero, Garcia, Medina, Castillo and Thompsom. Agents said they thought that there might be more cases of mortgages that were not made and invited anyone who had experienced such problems to call the Sección de Fraudes at 295-3312. |
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