The fiscal reform processed by the Costa Rican government under the bill for the Strengthening of Public Finances is necessary, but it would be too little to meet the needs of the country.
This is one of the conclusions of the report “Costa Rica: a difficult and potentially unsustainable fiscal situation,” prepared by the Central American Institute of Fiscal Studies (ICEFI), based in Guatemala.
The insufficiency comes from the poor performance of the reform, since it would be around 1.5% of GDP, while the total gap is around 4.5%, according to World Bank calculations.
This would require another reform later,”
said Abelardo Medina, a researcher from ICEFI.
This reform would only achieve stabilization for a few years,”
added Medina.
According to the Institute, even when a reform is crucial, unless it is credible and achieves a change in the structural conditions of the economy, the expectations of individuals and companies will remain the same, maintaining a high interest rate and low levels of investment and economic growth, in addition to risking the banking system, the main holder of the government’s debt.
Following an analysis of the approved bill, ICEFI believes that the reforms to sales and rent taxes could create “a porous legal body,” as a consequence of a large number of special treatments, differentiated rates, exemptions and transitory regimes, as well as no clarity about how the tax credit will be handled.
If the tax credit is not implemented well, it can be a source of evasion,”
said Medina.
The researcher also criticized the special treatment for micro-enterprises, because it could be used by large companies to reduce costs, by “pulverizing” or segmenting the companies.