Taxes on Bank Transactions? This is part of the Costa Rican Government’s Proposal to the IMF

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The Government of Costa Rica presented this Thursday to the Legislative Assembly the proposal (Plan to overcome the fiscal impact of the pandemic) to negotiate with the International Monetary Fund for a new loan of $1.750 Billion.

We need to maintain economic stability and activate employment to improve the situation in the country generated by COVID-19. If we do not act, the risk is in the high interest rates, devaluation, more unemployment, and poverty, which would affect everybody and in particular those with less resources. For this reason, we need to act and do it fast, the delay on this would be awfully expensive”, stated President Carlos Alvarado.

The President made emphasis in that those that “have more” will pay more.

Under this scenario, some of the proposals include:

• A temporary tax to all financial transactions that would be of 0.3% over the amount of the transfer for the years 2021 and 2022 and 0.2% the following two years.
This includes ALL bank transactions. (Deposits, Withdrawals, Transfers etc)
According to Treasury Minister Elian Villegas, this is the equivalent in income for the state of changing the VAT from 13% to 20% and the idea is to finance the elimination of a 5% that is currently paid by employers as part of their social security fees to FODESAF

• A raise in the percentage paid as income tax for salaries over ¢840,000 (approx. $1,425.00 USD), meaning that:
Salaries over ¢840,000 and under ¢1,233,000 (approx. $2,090.00 USD) will go from paying 10% to paying 12.5%.
Salaries over ¢1,233,000 and under ¢2,163,000 (approx. $3,666.00 USD) will go from paying 15% to paying 20%.
Salaries over ¢2,163,000 and under ¢4,325,000 (approx. $7,330.00 USD) will go from paying 20% to paying 25%.
Salaries over ¢4,325,000 will go from paying 25% to paying 35%.

• Tax over lottery prizes: A 25% tax would be applied to prizes that exceed 50% of a base salary.

• Property taxes to go from 0.25% to 0.75% with the differential to be transferred to the central government instead of the municipalities.

The government argues that they are looking for “balance” and therefore they will not raise the percentage of VAT, salaries under ¢840,000 will remain intact (without tax deduction), they will not implement mass layoffs and will only resort to the sale of the actives the government had committed to publicly, which include the National Liquor Factory (FANAL) and the International Banco of Costa Rica (BICSA).

Costa Rica already faced a complicated fiscal situation since before the pandemic and because of the effects of the pandemic expects the worse economic contraction since 1980.

The proposal will have to be approved by the Legislative Assembly in order to present it to the IMF by the beginning of October.

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