San José, Costa Rica, since 1956

Tax Evaders Have It Coming

After reneging on a campaign promise to seek sweeping tax reform, President Oscar Arias announced last week an initiative to crack down on tax evasion.

Arias tapped a group of representatives from government ministries, professional associations, and the judicial branch to draft a report by mid-July that outlines the extent of tax evasion in Costa Rica and proposes a strategy to fight it.

By collecting taxes more aggressively, the Arias administration has increased tax revenue to 15.5 percent of GDP last year, up from 13.5 percent in 2005. Still, Costa Rica’s tax revenue is low compared to the rest of the region.

Outdated tax laws are part of the problem. Seeing broad fiscal reform as too controversial, Arias has pushed just one new tax through the Legislative Assembly. This tax on pricey homes, passed in November, would raise $17.6 million per year to rebuild dilapidated neighborhoods.

Tax evasion is a second problem. In studying the incomes of 118 professionals, the Finance Ministry found that on average, each evaded paying an average $20,000 in taxes in 2006, according to the daily La Nación.

“It’s not a secret that tax evasion occurs in Costa Rica at worrisome levels,” Arias said. “And our social services …depend on tax collection.”

–Gillian Gillers


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