One year of VAT
On July 1st, 2019, the Law for Strengthening Public Finance, whose first title implied an integral reformation to our Sales Tax Law, came in force. The reformation implied two great changes: the general service tax and the possibility of financial deduction.
With a promising start, for October 2019 the Treasury Department announced with great fanfare, that we reached the highest revenues in the last five years. An increase which we hoped would result -in a long waited – decrease in the tax deficit. Nevertheless, and to surprise for everyone, the INEC announced us that a great amount of those fresh resources was used to finance part of the salaries of the 37 thousand new positions created by Alvarado Quesada´s Government.
Then the Pandemic came and with her a set of measures which have weakened the tax collection, first it was the Tax Relief Law which exonerated the payment of VAT on commercial rent during the months of April, May, and June 2020, as well as the moratorium of substantive obligations of the tax for the same months. We also approved the delay of the tax gradualism in the tourism sector, as well as the construction and cross-border services, we also lack, of legislative files which pretend to decrease or exonerate this or that service, this or that property.
From a technical point of view, we have a legislation that not a few times contradicts the law, we have lived the issuance of more than twenty resolutions and guidelines, some that adjust to others to be derogated by next one later. This has not facilitated the implementation of the regulation by the taxpayers, and we believe it will not result in a few determinations by the Administration.
We heard that now the OCDE (fiscal politics analysis) and other international organizations recommend increasing the VAT rate. We passionately believe in the necessity of a solid VAT, but we do not think that this is the moment to increase it, we also believe in a simpler regulation that permits the administered a correct interpretation of the regulation and for that matter a better application of the tax.
GCF Consultores Partner, member of the international firm TGS Global.