Following company firings and a debt downgrade, the new government in Costa Rica is attempting to give finances a boost by targeting tax evaders. In January, the government plans to send legislation to Congress that will make it more difficult for companies to skirt the 30-percent income tax by splitting into smaller units, according to Deputy Finance Minister Fernando Rodriquez. Ultimately, the goal of such legislation is to reduce a growing fiscal debt.
In September, Moody's Investors Service downgraded the country's debt rating, specifically citing Costa Rica's inability to contain the deficit as well as the problems associated with pushing tax changes through congress. It has proven increasingly difficult for President Solis to win congressional support for his fiscal policies after an election in April that served to divide the legislature without any party achieving a majority.
President Solis has reinforced efforts to gain momentum following the withdrawal of several of Costa Rica's largest foreign investors, namely Bank of America and Intel Corp. As a result of those limited operations, 3,000 workers were fired. Since then, Solis has been traveling around North America, seeking to attract investors to Costa Rica. The Costa Rican investment promotion agency recently announced that Amazon will be increasing its presence in Costa Rica with the addition of a fourth service center. Plans are also underway for Amazon to add as many as 1,000 jobs.
Even so, tax evasion remains a significant concern in Costa Rica, with the economy expanding at a slow pace. The government is also expected to ask congress to eliminate exemptions and make the personal income tax more simplified. Solis has stated that he would support converting the current 13-percent sales tax into a value-added tax.
Two years ago, tax evasion in Costa Rica exceeded the country's tax take. Under the latest plans, the government plans to reduce the fiscal deficit to 4 percent of the country's GDP.
