Chinchilla’s tax plan hits a wall

August 19, 2011

In an ironic twist emblematic of a central government disjointed from its Legislative Assembly, a highly anticipated second vote on the $300 annual business tax was delayed Tuesday afternoon only hours after President Laura Chinchilla and Economy Minister Mayi Antillón signed an agreement with the World Bank to improve the pace at which things are accomplished in Costa Rica. It was the second time in a week that the vote on the tax bill – deemed vital by Chinchilla – was delayed. 

The proposed $300 tax (₡158,000), known as the “Impuesto a las Personas Jurídicas,” passed a first vote on Aug. 8. The tax, if passed, would be applied to all Costa Rican corporations, foreign companies with offices in Costa Rica and limited liability corporations as early as January 2012.

After the tax passed first Assembly debate by a vote of 39 to five, the Ministry of the Presidency expressed its “satisfaction with the approval” and urged legislators to approve the tax in the second debate. If passed, the tax would raise an estimated $140 million of annual tax revenue, of which $80 million would be used to improve public security by increasing police forces, vehicles and equipment.

“The approval of laws like this represents a large step in reaching the proposed goals of this administration and creating better tools to improve the quality of life for Costa Ricans,” a press release from the Ministry of the Presidency said last week.

But after a positive start, the tax bill hit its first roadblock last Thursday. Walter Céspedes, a Social Christian Unity Party lawmaker from the Caribbean province of Limón, worked to block the bill, saying it was unfair to his constituents.

“Decisions of this government are never made for the province of Limón,” Céspedes said. “Paying an additional ₡158,000 per year is more than many people in Limón can afford.”

Céspedes managed to delay a second round of voting until Tuesday. In a press conference at the Casa Presidencial on Tuesday morning, Presidency Minister Carlos Benavides spoke out again in favor of the bill.

“Security is the most important issue facing this country at present, and the finances obtained from this tax would be used to improve public security,” Benavides said. “We would hope that the Legislative Assembly would approve this law as soon as possible. We will see what happens this afternoon, but it is certain that the people of the country are waiting to hear the ruling of the Legislative Assembly.”

But the vote never occurred.

“Tuesday morning we were met by the surprise that a short session had been scheduled to discuss the liquidation of the 2010 budget,” said Luis Gerardo Villanueva, head of the National Liberation Party (PLN), in a statement.

Villanueva said that the discussion of the 2010 budget lasted throughout the afternoon and again delayed the vote on the tax. Members of the PLN also accused other parties of stalling. A possible vote was pushed back to next week.

In anticipation of paying more taxes, many owners of businesses labeled as sociedades anónimas, or S.A.s, which can also be created for individual purchases like cars and homes, are already finding loopholes. Some are registering with the Economy Ministry (MEIC) as micro-, small-, or medium-sized businesses (PYMES), which would be exempt from the new tax.

On Tuesday, Antillón addressed the flood of small businesses trying to register with MEIC. Antillón said that in order to register as PYMES, companies must meet certain requirements. PYMES companies must be registered with the Social Security System (Caja), show evidence of paying taxes and fall in the financial-earnings range of a micro-, small- or medium- sized business.      

“To qualify as a small business, we look at the amount of active employees and sales,” Antillón said. “If a business meets the qualifications of a PYMES company and is within the earnings range, it will be allowed to register.”

Antillón said business owners can find out if they qualify as PYMES online at www.meic.go.cr or at the offices of the Economy Ministry.

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