By Blake Schmidt, Tico Times Staff

Business leaders who have been waiting for months to hear more about the Arias administration’s fiscal reform plan have finally received a plate full.

Finance Minister Guillermo Zúñiga spoke to members of the Costa Rican-American Chamber of Commerce (AMCHAM) last week at the Costa Rica Marriott Hotel in Belén, northwest of San José, to inform business leaders on parts of the nine-part fiscal reform plan as it begins to trickle in to Congress for debate.

“The clock is ticking … We hoped to see the plan come through already, but a lot of things are going through (the assembly) at the same time,” said Lynda Solar, general manager of AMCHAM. AMCHAM is a group of some 400 national and multinational affiliated businesses that promotes development and investment in Costa Rica ’s productive sector.

For months, the business community has been critical of the new administration’s tight lips as it put together the first pieces of its fiscal reform plan.

As the plan begins to come to light – with three parts of the project already sent to the assembly and the Finance Ministry and the Executive Branch hustling to streamline the income tax project – business leaders are decrying parts of the plan that would tax companies’ offshore holdings and all financial transactions, and are calling for fiscal reform that would bring transparency to taxation and formalize the economy.

The administration is trying to revive a tax plan that failed in the last administration after the Sala IV ruled the way the assembly approved the legislation was unconstitutional (TT, March 24). It is now trying to push through fiscal reform as the Legislative Assembly is already debating the polemic Central American Free-Trade Agreement with the United States (CAFTA) and its accompanying legislation.

Explaining the Tax Plan: Finance Minister Guillermo Zúñiga. Mónica Quesada | Tico Times

Zúñiga told members of AMCHAM that the fiscal reform plan could generate as much as $675 million for a budget-starved government trying to fund massive education, infrastructure and security projects.

So far, a 13% value-added tax, an annual $200 tax on licensed businesses and a tax on luxury homes that would be used to eradicate shantytowns are the projects that have been sent to the legislature. Zúñiga admitted that parts of the tax plan face “strong opposition” in the assembly and in the financial community. He said the three projects that have been presented have the least opposition of all the projects. Also, the administration has taken back an income tax proposal it sent to the assembly to restructure and “simplify” it, according to Zúñiga.

Facing a room full of Costa Rican business leaders Sept. 7, Zúñiga admitted that the income tax and a tax on financial transactions, which has not yet been sent to the assembly, are the “most polemic” of the tax plans.

The financial community “would like to look for alternatives to a tax on financial transactions,” he said, “and we’ve been conversing with them to do that.”

AMCHAM president Hernán Pacheco called a tax on financial transactions a “step back.”

“I like that project the least … that idea has been tried in other countries and resulted in a poor outcome in terms of collection,” he said.

Furthermore, Pacheco said, a tax on financial transactions would encourage informal transactions in an economy that is already largely informal.

He added that part of the income tax, which would globalize taxation to include taxes on companies’ offshore holdings, would be difficult for tax authorities to enforce.

“Not even the most Draconian of tax collectors has been able to control that,” he said.

Solar said AMCHAM supports a tax plan that would bring simplicity and transparency to Costa Rica ’s tax system.

“Here in Costa Rica, taxes aren’t used for what they were created for, for example, the gas tax isn’t used for roads,” she said.

Zúñiga said he has been advocating transparency in fiscal reform. He said part the tax plan would attempt to “close the holes” in the country’s tax laws by giving incentives to those who pay taxes and implementing a census that would attempt to expand the scope of tax collection. He said he supports a proposal that would eliminate taxes without a clear destination.

Zúñiga said the nine-part tax plan also includes a reform of the Code of Norms and Procedures, reform of free zones, and redefinition of the rights and duties of the taxpayer.