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 bankrupt, as property taxes represent as much as 40 percent of municipal budgets.

Speaking before legislators in San José at a meeting Thursday, the executive president of the Institute for Municipal Development (IFAM) Erika Linares 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 infrastructure, Linares said.

According to Luis Fernando Mackeld, IFAM vice president, if farmers get a tax break under this reform, there's a fear that subsequent owners of that property would also have the advantage of paying less in taxes, even if they use the property for a hotel or a housing development.

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

Luis Barrantes, legislator with the Libertarian Movement, proposed the bill with the argument that reducing property taxes 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's hoping the same would occur here.

“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 argues that by lowering property taxes, it will be easier to compel landowners to come forward with the prices that are closer to the real value of their property.

Alex Leff contributed to this report.