San José, Costa Rica, since 1956

Tax Plan Controversies Continue in Congress

DESPITE setbacks with the new tax plan, Finance Minister Alberto Dent says the government is firm in its resolve to push the plan through the Legislative Assembly by the end of April.

Following nearly a month of heated debate between the country’s political factions, the nine-member legislative commission charged with reforming the proposed Permanent Fiscal Reform Package on Saturday announced it was unable to reach an agreement on changes to the bill.

Since no agreement was reached, the tax plan is right back where it started last year. The original tax package, approved by a mixed commission in December, will go to the floor of the Legislative Assembly to be voted on by all 57 deputies.

COMMISSION chairman Mario Redondo, of the Social Christian Unity Party, stressed the urgency of the fiscal reforms.

“This is a project of national importance,” he said. “Schools’ and communities’ needs are not being met because the government lacks the necessary resources.

“Let’s say it clearly: this is a country with a taste for champagne but a budget for agua dulce,” he said, referring to a typical Costa Rican drink made with hot water and raw cane sugar. “We can’t aspire to develop if we don’t have resources. We have the option of choosing between being a beggar country or one with solidarity.”

Pressure on legislators to approve the tax plan has been mounting since President Abel Pacheco and Finance Minister Dent warned they would withdraw their support for the bill if it is not approved by April 30. Instead, they warned, they will move ahead with “Plan B” – slashing ¢72 billion ($171.4 million, roughly 1% of the country’s gross domestic product) from the budgets of 15 government ministries and several social programs (TT, Feb. 13, 20).

“We are obligated to have many alternatives,” Dent pointed out. “We, as any good executive, can’t find ourselves in a position where we don’t have anything to do. We have a clear conception of what we have to do and we’re going to do it.”

DENT, the tax plan’s main proponent, said he had mixed feelings about the latest commission’s final results.

“I expected more discussion of the bill’s content,” Dent told The Tico Times on Tuesday. “What they voted to approve was the same text we had agreed on in December. However, some advances were made. We’ve finished one phase and are ready to begin another one.”

By creating new taxes and improving the collection of existing taxes, the government hopes to increase revenues by an amount equal to 2.56% of the country’s gross domestic product (GDP) and permanently reduce the country’s fiscal deficit.

In December, after 15 months of debate, a mixed commission that included representatives of every legislative faction, business chambers, unions and other groups unveiled what was believed to be the final version of the tax proposal (TT, Dec. 5, 2003).

The Pacheco administration adopted the plan and submitted it to the Legislative Assembly as a bill on Jan. 19. The ninemember legislative commission was created Feb. 5 to study and modify the tax plan so it could be voted on. The commission was given until Feb. 26 to make last-minute changes (TT, Feb. 13), although the deadline was later extended until last Saturday (TT, Mar. 5).

TOWARD the end of last week, it appeared that the majority of the commission – deputies from the Social Christian Unity Party, National Liberation Party, Citizen Action Party and Carlos Avendaño of Costa Rican Renovation – had reached agreements on several main aspects of the tax plan.

The proposed changes would redefine income tax brackets, create additional exemptions to the proposed 13% valueadded tax, change the corporate tax rate and create a special tax system for small and medium businesses.

Agreements were reached during informal meetings between legislators outside the commission. Commission member Federico Malavassi, of the Libertarian Movement, blasted the meetings as a “parallel commission” that undermined the efforts of the real commission.

Redondo said the meetings were necessary to speed up the commission’s work. Malavassi paralyzed the commission, Redondo claimed, saying that during the last month, the Libertarian deputy had issued a barrage of more than 400 reform motions, many of which had no validity.

“IF we created a parallel commission it was the result of the circumstances,” agreed commission member Bernal Jiménez of National Liberation. “One deputy came in every day to issue 25 motions and speak for 15 minutes on each one of them. He repeated this behavior every day. Precious days that could have been dedicated to useful debate were lost.”

President Pacheco also blasted Malavassi’s antics. During his weekly television and radio address on Feb. 15, Pacheco singled out Malavassi and his party as the main reason he was threatening to resort to Plan B.

Malavassi fired back the next day, sparking a public war of words between the two (TT, Feb. 20).

The informal agreements reached during the final meetings were included in a 480-page motion that, once approved by the commission, would replace the majority of the December tax plan.

HOWEVER, on Saturday morning, shortly after the commission convened for its last day of debate, Citizen Action deputy Epsy Campbell announced her party was withdrawing support for the agreement.

Campbell said the motion failed to include her party’s main proposals — namely increasing the corporate income tax from 20% to 24%. She also argued deputies had not been given enough time to properly study the huge motion, and Citizen Action would not sign a document it was not familiar with.

Redondo said everything in the motion had been agreed to by the four parties, following hours of discussion and debate.

“Nothing in there is secret; everything is transparent and crystal clear,” he said. Jiménez and fellow Liberation party member Nury Garita accused Citizen Action deputies of going back on their word and delaying a bill of vital importance to the country by making a “political show” out of the commission.

THE 480-page mega-motion was not voted on, nor was it amended to the tax plan. Once the commission’s final deadline expired at 5:30 p.m. Saturday, the commission voted 5-4 to endorse the original December tax plan.

Citizen Action, which last December voted to endorse the very same tax plan, voted against it this time. Garita said she was outraged at this.

“I voted for this bill because I voted for the original project,” a visibly upset Garita told reporters shortly after the session ended. “When I reach an agreement, I keep my word.”

Unity, Liberation and Renovation on Tuesday issued a majority report with recommendations on what changes the plan needs. Citizen Action, Patriotic Bloc and the Libertarian Movement plan to issue three separate minority reports, which must be submitted by March 22.

While the bill is debated on the floor of the Assembly, legislators will have a chance to make changes to the bill. Jiménez and Garita have announced they will attempt to make all the reforms contained in the “mega-motion” through regular motions.

Saturday’s setback is the latest in a long series of delays to the plan, which was originally presented to the Legislative Assembly by the Pacheco administration in mid-2002 (TT, Aug. 2, Sept. 6, Oct. 18, 2002).

To give legislators more time to discuss and reform the Permanent Fiscal Reform Package, in December 2002, the government approved a temporary Emergency Tax Plan to raise funds during 2003 (TT, Dec. 20, 2002). Those extraordinary taxes expired at the end of last year.


Comments are closed.