Authorities Investigate Possible Tax Evasion

November 5, 2004

IT is hard to find a corner of the CostaRican government not involved in prosecuting,investigating, defending itselfagainst, or decrying corruption allegationsthese days, and tax authorities this weekannounced they too have a piece of theaction, and are investigating 27 peopleinvolved in the corruption cases before theProsecutor’s Office.The corruption cases involve allegedpayments made to Costa Rican governmentofficials and former officials by foreigncompanies engaged in major contractswith the Social Security System(Caja) and Costa Rican ElectricityInstitute (ICE).If the alleged payments were notdeclared to tax authorities, the recipientscould be prosecuted for tax evasion as wellas illicit enrichment, tax authorities toldthe daily La Nación.Taxation Director José ArmandoFallas told the daily that if investigatorsfind a difference between declared andreceived income, and that differenceexceeds ¢33 million ($74,000) – a figurerepresenting 200 times the 2004 basesalary – the case will be presented to theProsecutor’s Office.THE investigations were launched inSeptember, Fallas added, but their outcomeis partly dependent on the outcome of theProsecutor’s Office’s findings, since it mustbe determined whether the accused actuallyreceived the alleged payments before theGeneral Taxation Administration can finalizeits calculations.He emphasized the question iswhether the payments were received, notwhether they are legal or even ethical. If aperson received payments legally but didnot report the income, he or she is guilty oftax evasion, he said.A person convicted of tax evasionfaces 5-10 years in jail, Fallas said, andwould also have to pay the amount due,plus interests accumulated since the dateon which it should have been paid, andan additional 25% of the amount as afine.THE corruption-related tax evasioninvestigations are part of a wider effort bytax authorities and the Finance Ministry tobring tax evaders to justice.In addition to the 27 probesannounced Tuesday, the General TaxationAdministration and Fiscal Police areinvestigating 40 large businesses for taxevasion for a total of 67 cases, comparedto only 10 cases during 2003, La Naciónreported.Poor collection of taxes has been animportant issue for the Pacheco administrationand the Finance Ministry, sincecritics of the Permanent Fiscal ReformPackage, an ambitious tax plan, haveargued the plan does not do enough toimprove collection of existing taxes beforeimposing new ones (TT, Sept. 4).FALLAS told The Tico Times lastweek that recent estimates show approximately27% of current taxes are not collected.Still, he said Costa Rica has one ofthe highest collection rates in CentralAmerica.On Oct. 28, Finance MinisterFederico Carrillo said the FinanceMinistry is working with tax and lawenforcementauthorities in a campaign tocrack down on tax evaders, citing as anexample the recent seizure by FiscalPolice of a truck allegedly carrying ¢30million (approximately $67,000) in contrabandalcohol.“We are going to do everything in ourpower to bring all (tax evaders) to jail,”Carrillo said before donning a Fiscal PoliceT-shirt and posing in front of the seizedtruck, filled with boxes of wine and spirits.

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