by Rod Hughes
The World Trade Organization has given Costa Rica’s free zones a new lease on life—along with free zones throughout the Third World. Just when the latest extension was about to run out, the deadline to end tax exemptions that serve as an incentive for businesses to settle in Costa Rica will be extended to 2015.
This is not the first time WTO has pushed back the deadlines. The WTO rule against governments giving special breaks to businesses that went into effect in 1995 included a special exemption for Third World countries. The exception was to end 2003, was extended until 2009 but The Tico Times business writer Peter Krupa thinks 2015 may be the end of special treatment.
Costa Rica’s own law gives businesses settling in these zones eight to 12 tax-free years and four to six more years paying only half the normal taxes—but in order to meet these conditions, there are investment and export requirements. (These companies must export all or almost all of their products. This is not a government invitation for them to unfairly compete with local industry.)
Service industries, not subject to WTO rules, have been increasing, according to the article.
Businesses here pay a sliding scale tax up to 30%.
WTO also requires developing countries to have their tax reform plans developed by 2013. That may be a challenge, knowing the pace of congressional change in Costa Rica. Almost the sole congressional accomplishment in the squabbling, splintered Legislative Assembly during Abel Pacheco’s presidential term (2002-06) was a comprehensive tax reform. It took four years to draft, finally passed—and the Supreme Court struck down the new law as unconstitutional, before it could be applied.