Luxury Homeowners
Evade Tax
The first attempt to collect a new tax on
luxury homes in Costa Rica has ended in
failure, in spite of the fact that it is a
solidarity tax entirely devoted to building
social housing for slum-dwellers. The
Ministerio de Hacienda (Finance Ministry)
admitted that only one-quarter of the
expected revenue was collected after
extending the deadline for paying the tax
from Dec. 31 to Jan. 15.
The tax is levied on homes valued above ¢100
million colones (us$180,000 dollars),
according to Hacienda valuation methods that
real estate experts regard as setting
figures well below market prices.
After the deadline was up, the ministra de
Hacienda announced it had only collected
us$5.5 million dollars, instead of the
expected us $22 million dollars. The
Ministry announced that there are 10,000
luxury homes in Costa Rica, but only 3,000
owners paid the tax. "We will go after those
who haven't paid," said ministra Jenny
Phillips.
The tax was formulated in a special
law and approved unanimously by the Costa
Rican parliament. All revenue will be used
to finance the Ministry of Housing and Human
Settlements' slum eradication program.
The tax is to be levied for a period of 10
years on owners of luxury homes, at annual
rates that vary in six steps from 0.25 to
0.55 percent of the value of the house,
rising according to its price. The rate to
be paid will be based on appraisals of the
houses updated every three years.
The ministra de Vivienda (Housing Minister)
Clara Zomer said that the tax would be in
place for 10 years, in order to eliminate
slums and shanty towns in the country. It
was conceived as a solidarity measure to
provide decent housing for people living in
extreme poverty.
But the driving force behind the tax,
legislator Federico Tinoco of the ruling
party, the Partido Liberación Nacional
(PLN), says the tax should be reformed to
last more than a decade, because "the slums
cannot be eradicated in 10 years."
The tax authorities have up to three years
to oblige the home owners to pay up, but
Hacienda believes it can do this within one
year because it can identify the houses
involved, and even has aerial photographs of
each of them.
Taxpayers have the space of that year to
appeal the payment before the Administrative
Tax Court, challenge their tax rating, or
bring a lawsuit arguing that they are not
eligible for the tax.
In the view of real estate and tax experts,
another reason for the failure to pay the
first tax payment is that the Hacienda has
established mechanisms that are unfamiliar
to taxpayers, such as making declarations
online, and the overall procedure is
cumbersome.
"The trouble is that the amount collected
has been much less than expected," said
Minister Zomer.
However, the Banco Hipotecario de la
Vivienda, which is under the Ministerio de
Vivienda, has already received the revenue
collected, which will be immediately
allocated to the "bono comunal" (community
grant) program to cover the cost of paving,
sanitation services, parks and playgrounds
and other improvements in shanty town areas.
Zomer said there are 400 shanty towns in
Costa Rica at present, housing 40,000
families. She added that the revenue from
the tax collected so far will only pay for
the "improvement of one precarious
neighbourhood."
But she said her ministry has other funds,
totaling us$125 million dollars, for its
program to eradicate shanty towns. The
luxury home tax is "complementary," she
said.
This country of 4.5 million people has a
poverty rate of 18.5 percent, according to
figures from 2009. But local authorities and
social agencies are concerned because the
overall poverty rate grew by nearly one
percentage point compared to 2008, while the
proportion of those living in extreme
poverty increased from 3.5 to 4.2 percent.
Although Costa Rica's poverty rates are
among the lowest in Latin America, the
latest figures show that poverty has risen
as a result of the global economic crisis,
after a 2007 poverty rate of 16.7 percent,
the lowest in the country's history.
Previously an average of 20 percent of Costa
Rica's population were living below the
poverty line, although in the early 1980s
the rate shot up to 40 percent, said César
Zúñiga, a professor of political science at
the Universidad de Costa Rica (UCR) -
University of Costa Rica.
"Poverty in this country is different from
that in the rest of the region, because
Costa Rican social services have relatively
universal coverage," unlike in most of Latin
America, he said.
The national housing system was created in
the 1980s as part of a policy of social
protection for the lowest-income population.
"This is how the growth of poverty has been
curbed," Zúñiga said.
He remarked that the social protection plan
has contributed to the paradox that the
country's middle classes have the greatest
difficulty in achieving home ownership, as
they have access neither to credits nor to
the social assistance available to
low-income groups.
"The (social housing) policy has been
effective," although administrative and
political disorder have undermined the
efficiency of the system, he said.
In Zúñiga's view, the reluctance of the
richest strata of the population to pay the
solidarity tax indicates "a lack of
solidarity, which is cultural and moral in
character," although he also blamed the
ministry's inefficient tax collecting.
With reporting by Daniel Zueras, IPS
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