Tax Haven Reform: Costa Rica's Abel Pacheco faces opposition

by Mike Godfrey
Tax-News.com

Just when it appeared that Costa Rica's long-delayed fiscal reform plan
was about to see the light of day, a ruling by the country's
constitutional court has stopped the plan dead in its tracks, possibly
terminally.

In a ruling released last Wednesday, the Sala IV constitutional court once
again ruled that supporters acted illegally in the Legislative Assembly by
creating new procedures to "fast track" priority legislation, such as the
385 page tax bill.

The court also decided that the tax bill, known as the Permanent Fiscal
Reform Package, should have passed its first of two readings last month on
a two-thirds majority, not a simple majority.

While supporters of the tax plan are reportedly optimistic that the
procedural flaws can be corrected and the plan resurrected, the swearing
in of a new administration in May following February's elections gives
them precious little time, and it would appear increasingly likely that it
is the end of the road for a bill that has been batted around the
legislature for the last four years.

Nonetheless, reports suggest that the incoming administration of Oscar
Arias Sanchez will seek to introduce its own version of the tax bill,
albeit in a slimmed down version.

Seen by current president Abel Pacheco as vital to the future viability of
Costa Rica's national finances, the tax reforms would increased tax
revenues by $500 million by taxing worldwide incomes, introducing value
added tax on all but a handful of exempt services and introducing a
general tax rate of 30% on all types of economic activity, among other
measures.

However, opponents of the plan argued that the measures would deter
foreign investors and discourage wealthy business persons, expats and
retirees from settling in the country.