San José, Costa Rica, since 1956

Tax plan at tipping point

Among the 1,000 people that promenaded through the puddles of Avenida 2 in the “No to Fiscal Reform” march on Tuesday morning, the collective motive for the three-hour protest was lost somewhere beneath umbrellas and cacophonous megaphones. 

Protesters chanted and donned shirts that said “I defend my right to exonerate” – a swipe at a recent tax policy change by Customs agents – but when asked to define the group’s principal grievance, the compilation of answers was as varied as a child’s Halloween basket. 

“The fiscal reform package is going to punish the middle and middle-lower classes of this country, which is the salary range for most teachers,” said María Yantame, a public elementary school teacher in the San José neighborhood of Desamparados. “The government and upper class caused the financial problems, but it will be the middle and lower classes who pay for it. The teachers are completely against the fiscal reform.” 

Five meters from Yantame, standing beneath the spider-armed gazebo of San José’s Central Park to avoid the rain, Mauricio Ramírez, who was handing out T-shirts, said he was participating in the march to voice discontent with the recent lifting of a tax exemption on international shipping costs (see story on Page 4).   

“The Finance Ministry removed exemptions for shipping orders from the U.S. and now people are paying hundreds of dollars more for things they bought abroad,” Ramírez said. “This was never announced publicly by the Finance Ministry and now people can’t afford the additional costs of the orders.”

For Oscar López, former legislator and presidential candidate from the Access Without Exclusion Party, the protest was about politics. 

“President Laura Chinchilla … said she wouldn’t raise taxes, and now she is going to raise the cost of living for the entire country,” he said. “As a legislator, my responsibility was to listen to the people. It’s time for our politicians to start listening to the people again.” 

Tuesday’s protest, organized by legislator Mireya Zamora of the Libertarian Movement Party, began at 9:30 a.m. in San José’s Central Park. Waving flags, members of more than 20 labor unions moved in a slow, noisy procession down one of the city’s main streets, weathering intermittent bursts of rain on their march to the Legislative Assembly.

Zamora announced a second protest on Saturday and invited “all productive sectors of our country, housewives, students and laborers” to demonstrate against a government “that continues to … squander our money.” 

Tax Plan 2

Signs at Tuesday’s protest against tax reform were full of colorful language, some of it unfit to print.

Alberto Font

Though Zamora targeted no specific groups, Tuesday’s hodgepodge coagulated into a mass of teachers, political groups, students, shipping company employees and others looking to voice grievances against the government and scorn new taxes. 

While their objectives may have seemed disjointed, the group found uniformity when castigating government officials for spending the money of the middle and lower classes. 

“Teachers make limited salaries with little breathing room for higher taxes,” said Hazel Rodríguez, a public school teacher from Alajuela and member of the High School Teachers’ Association. “If a teacher makes $900 a month, with the increase of the value-added tax, over half of that salary will go towards taxes. This will not allow for savings or home purchases, and it will make it difficult for a teacher who has children.”   

If the tax plan is approved in the assembly, a 14 percent value-added tax (VAT) will replace the current 13 percent national sales tax. The VAT will tax services, but will not be applied to the 292 basic goods of common household items. 

Rodríguez said that the promise of no new taxes on basic goods is less rosy than it appears. 

“They will not tax basic goods, but products such as shoes, clothing, deodorant and underwear aren’t in the basic package,” she said. “When you add up all the additional taxes that will be charged, teachers will lose over half of their salaries to taxes.” 

According to Jordi Prat, senior advisor to the finance minister, much of the reform package’s new taxes will fall upon the wealthy, such as a 20 percent tax on incomes over $8,000 per month, and a tax on automobile purchases over $40,000.

Prat also said that new taxes on education and health will only be applied to private businesses at a rate of 2 percent. Public education and health services will remain untaxed.  

Latin America’s Largest Deficit 

Finance Minister Fernando Herrero told The Tico Times on Monday that the national deficit had reached 5.5 percent of the gross domestic product, more than $2 billion (see story on Page 10). That same day, the International Monetary Fund announced that Costa Rica has the largest fiscal deficit in Latin America for the second year in a row. 

The dire reality of Costa Rica’s deficit has been echoed for years, though the current package under review in the Legislative Assembly is the first plan that appears to have enough government support to pass.

What the plan doesn’t have, if Tuesday’s march serves as indication, is public support. 

“I’m a middle class construction worker,” said Carlos Villalobos. “You think I want to pay more taxes because the government spent all of its money? I can’t afford new taxes.”

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