Goods and services exempt from VAT
Do you know what the bill for the Strengthening of Public Finances is about? This initiative is soon to be approved in the Legislative Assembly and, although it has a very sophisticated name, it is something as simple as new taxes that would come into force – if everything goes as the Government has planned- next year.
The initiative consists of four items: Value Added Tax, Income Tax, aspects related to salary benefits, and limits on government spending.
Undoubtedly, the collection of VAT will impact us first hand, but according to authorities this is a first solution to a very serious fiscal crisis caused by the deficit.
1. What is the fiscal deficit?
The State is a family that has given the best to its many children. It has financed everything they have needed and more for years. They increased expenses without worrying about income. In addition, several of these children have been problematic. They do not generate money and they have gotten into ruinous businesses, leaving losses and new expenses that their parents had to assume.
So, this family currently has fixed expenses per month of 100 colones, but their income is only enough for them to pay 65 colones; they have to borrow the other 35 colones. It’s like a credit card, you can use it but then you have to pay dearly for that.
2. How does the fiscal deficit affect me?
Rocío Aguilar explains that if the taxes are not approved, life will be more difficult and expensive because loans will have higher interests and the unemployment rate will be higher as well. Additionally, the conditions for international help are not the same as before, so all of this creates a cycle that ends in financial crisis for businesses and the population.
3. Who are responsible for the fiscal deficit?
The minister prefers not to speak of those responsible, but mentions a series of factors that undoubtedly led to this situation:
– Creation of social programs, projects and investment destinations without budgetary content.
– Exemptions to activities without recovery with other collections.
– A greater life expectancy thanks to the success of public health programs.
– A large amount of nini population (those who neither study nor work).
4. Why not charge more to those who have more money?
The fiscal plan puts us all in one bag -rich, middle class, poor- and it charges us the same tax. The hierarchs argue that it is progressive because the more it is consumed, the more it is paid, but it is clear that 13% is not the same in 10 thousand colones for a person who earns minimum wage than for someone who reports an income of millions.
On this point, Aguilar says she will seek to move forward with other taxes that are much more progressive, such as global income, and fight tax evasion.
5. What happens if those taxes are not approved?
The country will have to continue borrowing money to finance public works and social programs. But the more loans, the higher the interests, and the higher the distrust of the agencies. In addition, it makes banks charge higher interest rates to people, creating a climate of distrust towards the country, which reduces investment and the offer of employment.
6. Which taxes need approval?
The legislators are assessing the possibility of approving the Value Added Tax and a modification to the Income Tax, mainly. The Value Added Tax will replace the sales tax and the main difference is that it would tax all the goods and services as well as the production chain. While the sales tax only taxes the goods and some services.
7. What does this mean?
As of its approval, 13% more will be paid for each purchase, be it for a good such as clothes, shoes, food, or a service such as cinema, the gym, or internet, among others. So, with a purchase of 10 thousand colones you would have to add 13% to the cost, which would be 1,300 colones.
8. What is the income tax?
The income tax charges 10% to all salaries above 800 thousand colones and up to 1.9 million. Those who exceed this cap pay 15% tax. With the reform, a charge of 20% of the salary is imposed on those who earn more than 2.1 million colones and up to 4.2 million, and from then on, 25% will be charged.
9. Why do they want to approve them?
According to Finance Minister Rocío Aguilar, the fiscal deficit is such a serious problem that she compares the country with a patient in critical condition, with the fiscal plan being a life opportunity. If new taxes are not approved, the resources to finance the main social programs will not be enough, nor will they have money to invest in infrastructure.
10. Who must approve the new taxes?
The legislators, who are discussing the issue at this time. Congresswoman Carolina Hidalgo said she hoped it would be approved this year. After the approval, they must be published in La Gaceta.