Costa Rica lottery winners rescued after tax bill fails

Posted: March 24, 2022, 6:36 a.m.

Last update: March 24, 2022, 11:44 a.m.

An attempt by Costa Rican leaders to increase the country’s revenue through additional taxes failed. The Legal Affairs Committee of the Costa Rican Congress has decided to suspend the bill to introduce a tax on lottery prizes.

Costa Rica Lottery
A lottery ticket for the Costa Rican “Gordito” lottery. A plan to tax lottery winnings in the country dies a year after its initial review. (Picture: The Nation)

Some Costa Rican leaders thought it would be a good idea to consolidate the country’s financial stability through the introduction of a new tax. By requiring lottery winners to pay a percentage of their winnings to the government, Costa Rica could improve its economic position.

It won’t happen again, because the attempt met resistance at every turn. Doomed from the start, the backlash was swift and fierce. An overwhelming majority of people believe that the government should put its own house in order before making the public pay for its mistakes.

No new taxes

Although the opposition has already rejected the proposal, the plan to impose a tax on lottery prizes was unanimously rejected by the Congressional Legal Affairs Committee. The tax targeted lottery prizes above 462,000 CRC (724 USD).

The executive power designed this project within the framework of an agreement concluded with the International Monetary Fund (IMF). Thanks to it, among other things, was a new tax on lottery operations.

However, in an election year, resistance was extremely high. Franggi Nicolás Solano of the National Liberation Party was one of the most vocal opponents. She said she would not approve of any tax “that affects the pockets of Costa Ricans”.

Solano added: “I will fight to ensure that no more taxes are passed on to the homes of middle class families. [The tax] the projects were an occurrence of the government which, more than repairing state finances, the only thing they caused was damage to the pockets of Costa Ricans.

Conversations about a new lottery tax began a year ago, with several versions presented to lawmakers. Since then, resistance has been strong and opposition leaders to the government have categorically refused to accept any new tax.

The deputy of the National Integration Party, Walter Muñoz, also expressed his opinion. He said that, from a fiscal point of view, the taxes that the current Costa Rican government has set “have absolutely not solved anything (sic) of the budget deficit”.

The government could not show how the new tax could impact – or benefit – the country, which was another point of contention. José María Villalta, of the Broad Front political party, told local media that this project had been carried out without “the studies or the justification that such a question should have”.

Costa Rica’s economy is declining

Among other issues, COVID-19 has caused Costa Rica’s economy to decline. In 2020, its gross domestic product (GDP) fell by 4.1%, according to the World Bank. This is the biggest drop in 40 years, the result of higher inflation and lower investment and consumption.

At the end of 2020, unemployment reached a quarter of the population. At the same time, the income of the bottom 40% of the population fell by 15%. Today, more than 13% of the population lives in poverty. For 2022, GDP is expected to maintain or slightly exceed the 2020 level.

Fitch Solutions predicts a further downturn. He said last January that the country’s economic growth would decline from 5.9% last year to 3.3% this year, falling to 2.8% over the next three years.

Despite the drop, a political candidate thinks Costa Rica can cut taxes further. José María Figueres was the country’s president from 1994 to 1998 and is in the running for another race. He thinks that there are at least 25 taxes that can be abolished because they represent “only” 2% of GDP.

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