Tax Collection Deficiencies Eyed

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Mounting opinion that deficiencies in Tributacion Directa tax collection is letting revenues slip through the tax net has placed engineers, medics, dentists, lawyers and other professionals in the public spotlight.

The newspaper La Nacion reports that in 2010, 93% of well-paid professionals paid an average of just under 36,000 colones per year. (Keep in mind that 500 colones is something less than a U.S. dollar.)

The figures collected by the Comptroller General's office uncovered one fairly typical case of a professional with a salary of 834,000 colones per month paid just 248,400 in taxes for all of 2010.

But the report gets worse: 63% of them paid no taxes at all. And 66% of all tax revenues were paid by 1.4% of of taxpayers! From reading the report, it would seem that under-reporting of income and even tax dodging is a cottage industry here.

The study included professionals who have registered as businesses as well as individuals. Included were architects, engineers, dentists, medics, accountants, auditors, lawyers, notaries, persons in the information sector and veterinarians.

As it is, such professionals contributed 14,7 billion colones in taxes last year. But the Comptroller reports says the potential is about 78 billion.

But, at least, things are improving somewhat: between 2006 and 2010, the number declaring their income rose nearly 59%. The Comptroller credits increased collection efforts by Tributacion Directa for the increase, not guilty consciences.

Stung by the report, Dr. Alexis Castillo, head of the Medical Association (the equivalent of the AMA in the United States) that doctors should not be singled out for criticism but other professionals are also wanted. He noted that he, personally, had taken courses in making out tax declarations taught by Tributacion experts.

Analysis: This is not the first time the Comptroller General's office has focused on tax collection. The news blog Inside Costa Rica has had two opinion pieces recently casting doubt upon the need to raise taxes through the reform bill in the legislative Assembly.

The most recent entry, unsigned, questions whether President Laura Chinchilla's 2012 budget could be balanced by a combination of better tax collection and spending cuts instead of higher taxes.

The blog points out some unfair aspects of the current tax code. For example both rich an poor alike contribute through the sales tax, which brings in 45% of the revenue. But exports only account for 0.19%, the blog points out.

Finally, the blog writer makes a telling point in that the Comptroller attributes the loss of 200 billion colones to inept tax collection--which happens to be slightly less than what the government hopes to gain annually with tax reform.

Inside Costa Rica raised some interesting possibilities for spending cuts as well. Besides the 38 billion colon bailout of the Social Security system, the country will pay out 6.7 billion in legal fees.

The blog says that 27% of this year's budget went for "propaganda." In Spanish  that word means public relations and advertising, as well. Each ministry has its office, churning out press releases for the media, the type reporters and editors routinely dump, to be recycled into toilet paper.

If one asks a bureaucrat why he needs a press office, he will say it is to "inform the public" about what their government is doing. Mostly, in reality, it is to put a positive spin on things if the boss gets it caught in the wringer.