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OECD Tax Policy Reviews: Costa Rica 2017

image of OECD Tax Policy Reviews: Costa Rica 2017

This report is part of a new series of publications entitled OECD Tax Policy Reviews. These country reviewsare intended to provide independent, comprehensive and comparative assessments of OECD member and non-member countries’ tax systems from a tax policy perspective as well as concrete recommendations for tax policy reform. By benchmarking countries’ tax systems and identifying tailored tax policy reform options, the ultimate objective of the reviews is to enhance the design of existing tax policies and to support the adoption and implementation of tax policy reforms.

This first edition provides a comprehensive tax policy assessment of Costa Rica’s current tax system as well as tax policy reform recommendations. The report is divided into five chapters, starting with a general chapter providing an overview of key macroeconomic and tax revenue trends (Chapter 1), followed by an assessment of the main types of taxes of the Costa Rican tax system, including corporate income taxes (Chapter 2), personal income taxes and social security contributions (Chapter 3), the general sales tax (Chapter 4) and environmentally-related taxes (Chapter 5)

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Putting in place a modern VAT system in Costa Rica

This chapter discusses the sales tax in Costa Rica, which has a narrow tax base and does not apply to services in general. The impact on domestic and international trade of the sales tax is discussed. The chapter also focuses on the regressivity of the sales tax at the top of the income distribution as a result of sales tax exemptions which primarily benefit the wealthy. Costa Rica is planning to introduce a welldesigned and broad-based valued added tax (VAT) system, covering both goods and services, to be able to generate additional revenues and remove existing sales tax distortions. Costa Rica's plans to mitigate the distributional effects of a broadbased VAT through well-targeted transfers are also discussed.

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