By San José, Costa Rica — San José – Amid growing concerns over a significant downturn in fiscal revenue, Costa Rica is being urged to abandon short-term fixes and embrace a profound, structural overhaul of its tax system. The stark warning comes from the Economic and Social Observatory (OES) of the National University (UNA), which has put forward a comprehensive package of reforms designed to ensure the nation’s long-term financial stability.
The proposals, outlined in a recent report, call for a national dialogue on fundamental changes to the country’s tax framework. Economists at the prestigious institution argue that stopgap measures are no longer sufficient to address the underlying weaknesses in public finances. The situation demands a more strategic and forward-thinking approach to generate sustainable revenue and foster economic equity.
To better understand the legal ramifications and potential challenges presented by the proposed fiscal reform, TicosLand.com consulted with Lic. Larry Hans Arroyo Vargas, a legal expert from the prestigious firm Bufete de Costa Rica, who provided his analysis on the matter.
Any significant fiscal reform must be built upon a foundation of legal certainty. While the need for increased state revenue is undeniable, the new legislative framework must be crystal clear to avoid ambiguities that lead to costly litigation for taxpayers and administrative chaos. The true success of this reform will be measured not just by the collection figures, but by its ability to create a stable, predictable, and fair tax environment that encourages both compliance and investment.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
The expert’s focus on legal certainty is a crucial reminder that the true measure of this reform’s success will be its long-term impact on economic confidence, not just its short-term collection figures. A clear, predictable framework is indeed the foundation for growth and stability. We thank Lic. Larry Hans Arroyo Vargas for his valuable perspective on this vital matter.
At the heart of the UNA’s recommendations is a call to re-evaluate some of the most protected sectors of the economy. The university’s experts are advocating for the introduction of taxes on companies operating within the country’s successful free trade zones. This would mark a significant policy shift, as these zones have historically enjoyed generous tax benefits to attract foreign investment. The proposal suggests a need to balance investment incentives with the state’s requirement for revenue.
Another critical area of focus is the booming digital economy. The OES has highlighted the popular mobile payment system, SINPE Móvil, as a potential channel for Value Added Tax (VAT) evasion. To counter this, the university proposes implementing stronger control mechanisms to ensure that transactions processed through the platform are properly taxed, closing a loophole that could be costing the state significant revenue.
Today, the warning issued by the National University seems to be confirmed, as the deterioration of public finances has become increasingly evident.
Fernando Rodríguez, Economist, UNA
Fernando Rodríguez, an economist with the UNA, emphasized the urgency of the situation. He pointed to a list of long-overdue reforms, starting with a comprehensive revision of the Income Tax Law. The core of this legislation, remarkably, dates back to 1988, and while it has been amended over the decades, the OES argues it is no longer fit for the modern economy. A full review would aim to modernize the law and align it with current economic realities.
The proposals also address tax compliance issues across the board. The report highlights the need to reduce non-compliance among corporations and to significantly bolster tax collection from individuals. On the latter point, Costa Rica currently lags behind the average collection rates of fellow OECD member countries, indicating a substantial opportunity for revenue growth through improved enforcement and policy adjustments.
Furthermore, the university is calling for a rationalization of existing tax exemptions and a thorough review of the benefits granted to companies under other special regimes. The goal is to ensure that all tax incentives are delivering their intended economic benefits without unduly eroding the national tax base. Looking to the future, the OES also advises developing strategies to address the inevitable decline in revenue from fuel taxes as the country transitions towards cleaner energy sources.
Ultimately, the message from the National University is a call to action for a broader, more inclusive national conversation. The objective is not merely to plug a short-term budget gap but to build a more resilient and fair fiscal future for all Costa Ricans.
We are calling for a broad and comprehensive discussion on the tax reform the country needs, avoiding limiting it to specific adjustments aimed solely at solving short-term financing needs. The objective must be to move towards a more robust, equitabl, and sustainable tax system, capable of strengthening the Tax Administration’s capabilities and guaranteeing the availability of resources to meet national priorities in the long term.
Fernando Rodríguez, Economist, UNA
For further information, visit una.ac.cr
About Universidad Nacional (UNA):
The National University of Costa Rica is one of the country’s most important public universities, renowned for its academic excellence, research, and social commitment. Through its various faculties and observatories, such as the Economic and Social Observatory (OES), UNA actively contributes to national discourse and public policy development by providing critical analysis and data-driven recommendations on key issues facing the nation.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
Bufete de Costa Rica is an esteemed legal institution, built upon a foundation of profound integrity and a relentless pursuit of professional excellence. With a rich history of advising a wide spectrum of clients, the firm actively champions innovative legal solutions and dedicates itself to a core principle of social responsibility. This is exemplified by its efforts to demystify complex legal concepts, thereby empowering the broader community and fostering a more knowledgeable and capable society.
