February 28, 2021

The president of Costa Rica signs a moratorium on sanctions for controversial VAT

The president of Costa Rica, Carlos Alvarado, signed on Monday a law approved by Congress that establishes a moratorium of three months to the application of sanctions to those who fail to pay the controversial Value Added Tax (VAT).

The law was approved expeditiously by Congress last week amid protests from union and social sectors opposed to VAT, a tax of 13% that came into effect on July 1 to replace the sales tax of the same rate, but that taxes the services and in a differentiated way some previously exempt products.

President Alvarado has said that there is no turning back with the application of VAT, but he supported the three-month moratorium on sanctions in order to provide a space for adaptation to taxpayers.

"With the entry into force of the VAT we are taking a momentous step in the reorganization of our public finances and in the modernization of our tax system," the president said in a statement Monday.

The VAT is part of a tax reform that Congress passed last December in order to alleviate the growing fiscal deficit, which in 2018 closed at 6% of the gross domestic product (GDP), as well as the debt that was 50% of the GDP that year.

With the reform, the debt would reach its peak by 2023 at around 65% of GDP to begin to decrease from 2024, according to the projections of the Central Bank.

With the entry into force of VAT on July 1, trade union and social sectors held demonstrations last week and even freight transporters blocked vital roads for the country's international trade, before which the police had to intervene even with tear gas in some sectors.

President Alvarado proposed to the demonstrators the opening of ten negotiation tables for each sector separately in order to meet various requests.

Among the protesters' requests was a 18-month moratorium on the application of VAT, however this possibility has been ruled out by the Government.

Other demands of the protesters is for Congress to file two bills that they consider affect the right to strike, as well as the wages of public sector workers.

One of these laws seeks to prohibit strikes in a list of public services considered essential, including education; and the other aims to reorder public sector salaries and reduce salary bonuses.

(tagsToTranslate) president (t) Costa (t) Rica (t) moratorium (t) VAT

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