San José, Costa Rica, since 1956

Towns Warn Land Tax Cut Could Bankrupt Them

Municipal leaders are protesting a proposal in the Legislative Assembly that would reduce property taxes for farmers.

The reduction, they say, could cause local governments to go bankrupt, as property taxes represent as much as 40 percent of municipal budgets.

Speaking before legislators in San José at a meeting Thursday, Erika Linares, executive president of the Institute for Municipal Development (IFAM), said, “Approving this reform to the Property Tax Law would differentiate one economic activity from another, opening the door for other sectors – for example, real estate, residential tourism or commercial entities – to ask for the same. We cannot privatize profits and socialize losses at the expense of the rest of Costa Ricans.”

Because local education boards receive 10 percent of these funds, (rural) schools across the country would not have money to buy adequate teaching materials and to maintain their infrastructures, Linares said.

According to Luis Fernando Mackeld, IFAM vice president, if farmers are allowed tax breaks under this reform, the fear is  that subsequent owners of farmland would  pay less in taxes, even if the property is used for something else, such as a hotel or housing development.

The proposal, which would reduce farm property taxes from 0.5 percent to 0.1 percent, was only recently introduced in the Legislative Assembly.

Luis Barrantes, legislator with the Libertarian Movement, proposed the bill, using the argument that reducing property taxes on farmland would actually bring more money for cities and towns.

Barrantes pointed to Estonia’s low-rate flat tax as an example that helped spur that Eastern European country’s economic growth. He said he hopes the same would occur in Costa Rica.

“This bill will bring an increase in income to municipalities,” Barrantes said.

“The Finance Ministry says more than 90 percent of property is valued at less than ¢10 million, which is less than $20,000 – that’s absurd!”

Barrantes argued that lower property taxes would make it easier to compel landowners to accept property assessments that are closer to the real value of their property.

–Chrissie Long

Alex Leff contributed to this report.


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