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COSTA RICA: Luxury Homeowners Evade Solidarity Tax

Daniel Zueras

SAN JOSÉ, Feb 4 2010 (IPS) - 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 Finance Ministry in this Central American country 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 180,000 dollars, according to Finance Ministry valuation methods that real estate experts regard as setting figures well below market prices.

After the deadline was up, the Finance Ministry announced it had only collected 5.5 million dollars, instead of the expected 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 Finance Minister Jenny Phillips.

The levy known as the solidarity 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 programme.

The solidarity 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.

Housing Minister Clara Zomer told IPS 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, lawmaker Federico Tinoco of President Oscar Arias’ National Liberation Party, 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 the Finance Ministry 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 Finance Ministry 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 Housing Mortgage Bank, which is under the Housing Ministry, has already received the revenue collected, which will be immediately allocated to the “bono comunal” (community grant) programme 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, totalling 125 million dollars, for its programme 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 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.

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