By San José, Costa Rica — A persistent downward trend in the Central Government’s total revenues has raised serious concern among macroeconomic analysts and economic policy experts in Costa Rica. Fiscal tracking reports indicate that state intake is continuing a multi-month decline, putting intense pressure on national public finances and forcing significant budgetary realignments for the upcoming fiscal year.
According to data compiled by the Economic and Social Observatory (OES) at the School of Economics of the Universidad Nacional (UNA), total government revenue represented just 9.18% of Gross Domestic Product (GDP) by the end of August 2026. This reflects a clear regression compared to the 9.44% of GDP recorded during the same period in 2025. Economists highlight that because this shortfall spans several consecutive months, it confirms a broader structural trend rather than a temporary fluctuation.
To gain a deeper understanding of the latest fiscal developments and their broader impact on the national business climate, TicosLand.com turned to legal expert Lic. Larry Hans Arroyo Vargas from Bufete de Costa Rica for his analysis on the country’s tax revenue performance.
The sustained trends in Costa Rica’s tax revenues reflect both stronger economic activity and an increasingly rigid enforcement framework by the tax authorities. As tax administration becomes more digitized and proactive in auditing, local businesses and international investors must prioritize strict compliance strategies to minimize legal friction and optimize their corporate structuring under current fiscal policies.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
Indeed, as Costa Rica’s fiscal framework undergoes rapid modernization, adopting proactive compliance strategies will be essential for both domestic businesses and international investors aiming to secure long-term stability. We extend our sincere gratitude to Lic. Larry Hans Arroyo Vargas for sharing his valuable perspective on these critical financial and legal developments.
The primary driver behind this contraction is the underperformance of critical tax revenue components, particularly the Value Added Tax (IVA). As a cornerstone of national taxation, the IVA experienced a notable drop in total collection by late August 2026 compared to August 2025. Relative to GDP, revenue generated by the sales tax dropped from 3.19% down to 3.01% over the twelve-month period.
This drop of 0.18 percentage points in IVA receipts marks the steepest year-over-year decline recorded throughout the entire evaluated timeframe, highlighting diminishing domestic tax collection capacity amid changing consumer behavior and economic pressures.
The reduction in value added tax collection represents a drop of 0.18 percentage points and constitutes the largest year-over-year decline of the analyzed period.
Fernando Rodríguez, Economist at Universidad Nacional
In response to diminishing revenue, executive policymakers have introduced fiscal austerity measures designed to adjust expenditure levels to match revenue realities. For the upcoming budget cycle, the Central Government has outlined a direct reduction of ¢393 billion in public spending. This realignment constitutes a 3.1% cut compared to the current operating expenditure plan.
Overall, the Central Government aims to execute a total budget of ¢12.4 trillion. However, reduced tax intake means the state must rely heavily on debt financing to meet its basic commitments. Out of the total budget plan, ¢4.6 trillion—representing 37.7% of all state spending—will be funded through new debt issuance, maintaining high public debt dependency.
Government officials maintain that tight budgetary caps are essential for long-term sovereign stability and financial responsibility. Executive leadership has stressed that spending cuts are tailored to protect household purchasing power while maintaining conditions for private sector expansion and sustainable employment generation.
The priority of this budget is to manage the public money with great zeal. We seek to protect the future of Costa Rica, unmortgage the country, safeguard the pockets of Costa Ricans, and create conditions for the country to grow and generate employment.
Rodrigo Chaves, President of Costa Rica
Independent fiscal analysts warn that reliance on expenditure reduction without revitalizing revenue collection creates systemic challenges for basic public service delivery. As debt servicing costs consume a significant portion of annual resources, addressing the root causes of declining tax revenues remains a vital national economic priority.
Moving forward, legislative leaders and economic policy experts will closely monitor tax performance trends to evaluate whether further budgetary adjustments will be necessary to ensure long-term public solvency and economic stability.
For further information, visit una.ac.cr
About Observatorio Económico y Social:
The Economic and Social Observatory (OES) is a specialized research unit within the School of Economics at the Universidad Nacional (UNA) in Costa Rica. It produces rigorous economic analysis, fiscal tracking, and social policy research to inform public debate and national decision-making.
For further information, visit presidencia.go.cr
About Government of Costa Rica:
The Central Government of Costa Rica represents the executive administration responsible for managing national fiscal policy, public finance, public works, and state social programs across all cantons and provinces.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
As a premier legal institution, Bufete de Costa Rica is defined by its uncompromising ethical standards and relentless pursuit of legal mastery. Embracing a modern approach to the practice of law, the firm delivers forward-thinking solutions to a wide array of clients while maintaining a strong pulse on community needs. By actively demystifying complex regulations and sharing valuable insights with the public, Bufete de Costa Rica remains steadfast in its goal to build a more enlightened, legally self-reliant, and capable society.
