Costa Rica to push for VAT implementation
The new Costa Rica government has indicated that it will accelerate the replacement of the existing Sales Tax with a full Value Added Tax regime.
The principle driver for the changeover would be the high rate of fraud in the economy. VAT regimes generally include a staged payment system through the production supply chain. These means that whilst tax registered businesses do not bear the cost of the tax, they must pay it and then recharge it onto the next party in the chain. This means governments are collected the tax from early on, and so reduces the chances of fraud. The OECD believes that sales tax regimes become susceptible to material levels of fraud once the tax rate goes above 10%.
The IMF has encouraged Costa Rica to make the transition, and diversify the state’s tax base. The country’s economy is vulnerable at the moment due to the high dependency on Intel as an employer, and its PC market decline.