An attempt by Costa Rica’s leaders to increase the country’s revenue through additional taxes has fallen flat. The Legal Affairs Committee of the Costa Rican Congress decided to shelve the bill that sought to introduce a tax on lottery prizes.
Some Costa Rican leaders thought it would be a good idea to shore up the country’s financial stability through the introduction of a new tax. By making lottery winners pay a percentage of their winnings to the government, Costa Rica could improve its economic position.
That will no longer happen, as the attempt met resistance at every turn. Doomed from the start, the backlash was rapid and fierce. An overwhelming majority of people feel the government needs to get its own affairs in order before making the population pay for its mistakes.
No New Taxes
Although the opposition already rejected the proposal, the project that sought to set a tax on lottery prizes was unanimously defeated by the Legal Affairs Committee of Congress. The tax targeted lottery prizes over CRC462,000 (US$724).
The Executive Branch designed this project within the framework of an agreement made with the International Monetary Fund (IMF). Through it, among other items, was a new tax on lottery operations.
However, in an election year, the resistance was extremely high. Franggi Nicolás Solano of the National Liberation Party was one of the more vocal opponents. She stated that she won’t approve any tax “that affects the pockets of Costa Ricans.”
Solano added, “I will fight so that no more taxes are passed on to the homes of middle-class families. [The tax] projects were an occurrence of the government that, more than fixing the finances of the State, the only thing they caused was damage to the pockets of Costa Ricans.”
Conversations about a new lottery tax began a year ago, with several versions presented to lawmakers. Since then, resistance has been strong, and government opposition leaders have adamantly refused to accept any new tax.
The deputy for the National Integration Party, Walter Muñoz, voiced his opinion as well. He said that, from the fiscal point of view, the taxes that the current Costa Rican Government has set “have not solved (sic) absolutely nothing of the fiscal deficit.”
The government couldn’t show how the new tax might impact – or benefit – the country, which was another point of contention. José María Villalta of the Broad Front political party told local media that this project had been carried out without “the studies or the justification that such an issue should have.”
Costa Rica’s Economy Declines
Among other issues, COVID-19 caused Costa Rica’s economy to decline. In 2020, its gross domestic product (GDP) shrunk by 4.1%, according to the World Bank. This was the biggest decline in 40 years, the result of increased inflation and decreases in investments and consumption.
By the end of 2020, unemployment reached a quarter of the population. At the same time, the income of the lower 40% of the population dropped 15%. Now, more than 13% of the population lives in poverty. For 2022, the GDP is forecast to maintain or slightly beat 2020’s level.
Fitch Solutions predicts another downturn. It stated this past January that the country’s economic growth will drop from 5.9% last year to 3.3% this year, falling to 2.8% across the next three years.
Despite the drop, one political candidate thinks Costa Rica can cut more taxes. José María Figueres was the country’s president from 1994 to 1998, and is vying for another run. He thinks there are at least 25 taxes that can be eliminated because they “only” represent 2% of the GDP.
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