| SAN JOSE
SAN JOSE Jan 29 Costa Rica's government will
submit to lawmakers in 2014 a fiscal reform bill to boost
consumption taxes and cut the deficit as it seeks to tap global
debt markets, the country's finance minister said on Tuesday.
President Laura Chinchilla's administration will ask
lawmakers to scrap the country's sales tax and replace it with a
higher-rate value-added tax (VAT), Finance Minister Edgar Ayales
told Reuters on Tuesday.
Ayales said the bill, which he thinks can be approved before
Chinchilla's term ends in May 2014, would seek to cut the
country's fiscal deficit from recent levels around 5 percent of
gross domestic product to a 2 percent target by 2018.
"The objective is to reduce the deficit by three
(percentage) points, but this cannot just be on the income side.
It also has to have a spending component, which has not been in
previous reforms," Ayales said.
The bill would seek to replace the current 13 percent sales
tax with a VAT tax of 14 percent to 15 percent, Ayales said.
Costa Rica, a coffee exporter and top tourist destination in
Central America, has been trying to clean up its books as it
plans to issue $1 billion in eurobonds in May or June.
With one of the highest fiscal deficits in Latin America,
Costa Rica has had to go to international debt markets to
finance spending, which has increased every year by about 10
percent over the last seven years.
A previous attempt to overhaul the tax code was killed last
April, when a panel of judges in the Supreme Court ruled it was
unconstitutional in a major blow to one of the Chinchilla
administration's top priorities.
"Costa Rica has never passed a fiscal reform as one package
of measures and certainly nothing like Ayales is envisioning
right now," said Alberto Franco, who led the country's central
bank 20 years ago and has advised other administrations.
He says a new, higher VAT will be very unpopular. "It's
possible that it's unnecessary to raise the rate if you broaden
the base", he added.