Tax reform: Could Ukraine do it like Costa Rica?
In 2016, Costa Rica’s economy grew at a good 4.2% of GDP, but this year this figure is comparable to Ukrainian tortoise runs (we have 2.7% they have 2.9%).
The success recipes of highly developed countries are in many cases not applicable to low-income countries such as Ukraine. Therefore, it makes sense to pay close attention to the experience of our brothers in economic parameters. And this is primarily the countries of Latin America.
And although the Costa Rican economy, based on tourism, agriculture, production and export of electronics (microprocessors and medical devices), is half the size of Ukraine, it provides a 3.7 times higher per capita income (11 900 against 3 220 dollars per year, IMF data).
By the way, 10 years ago (in 2009) Costa Rica took first place in the International Happy Planet Index, and the motto of the state is non-trivial: “Long live labor and peace!”.
In 2016, Costa Rica’s economy grew at a good 4.2% of GDP, but this year this figure is comparable to Ukrainian tortoise runs (we have 2.7% they have 2.9%).
But there are differences. Over the past five years, politicians of the “rich coast” have not been engaged in chatter and robbery, but they did simple things: for example, they adopted a tax reform at the end of last year, which entered into force on July 1, 2019. In my opinion, this reform is calm and balanced.
Details:
1. The plan regarding the deoffshorization of the country and the protection of the national tax base was called the “Law on strengthening public finances.” Its key components are: limitation of direct payments to offshore (not deductible); tightening of the thin capitalization rule (capital withdrawal under the guise of interest on a loan will be more strictly controlled by tax authorities); the distribution of dividends on domestic “holding enterprisees” will be taxed at 15% (Costa Rica does not want to be a tax haven); a 15 percent capital gains tax will appear.
2. Direct sales tax is replaced by the unloved by many people VAT. The base tax rate of 13% is finely diluted with the 4% rate for medicine and transportation services, the 2% rate for drugs and education, and the 1% rate for basic agricultural products.
3. The new five income tax rates for individuals include a state refusal to tax income below $ 1,420 a month and a 25% tax rate for income over $ 7,340.
4. The last on the list, but by no means the least, is a three-month tax amnesty that expired on March 5 of this year and brought the Ministry of Finance a total of just over $ 280 million (CIAT data).
The authorities of Costa Rica expect that these measures will reverse the recession and achieve an economic growth rate of 4.5% of GDP by 2023.
“If you want to have something that you never had, you will have to do what you never did.” (Coco Chanel)
