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    Costa Rica Tax Changes Pass to Supreme Court After Congress Vote

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    Costa Ricaโ€™s Congress last night gave initial approval to an overhaul of the tax system aimed at paring a fiscal deficit equal to more than 5 percent of gross domestic product.

    The legislation now awaits aย Supreme Courtย ruling on opposition allegations that its fast-track treatment by lawmakers was unconstitutional. The tribunal takes an average 18 months to decide on constitutional matters, court spokeswoman Vanlly Cantillo said.

    The new system would add about $650 million annually to government revenue, according to the Finance Ministry. Changes include replacing the 13 percent sales tax with a 14 percent value-added tax and imposing a 15 percent tax on dividends earned by companies that enter the countryโ€™s free-trade zones after 2015.

    Costa Ricaโ€™s $40 billion economy, the second-biggest in Central America, is weighed down by a fiscal deficit equivalent to about $2 billion, approximately the amount the country earns from tourism. Central bank President Rodrigo Bolanos said in January that as a result, economic growth will slow to 3.8 percent this year from 4.2 percent in 2011.

    The legislationโ€™s approval by Congress was the โ€œbiggest and most progressiveโ€ fiscal agreement in the nationโ€™s history, Finance Minister Fernando Herrero said. Thirty-one of 50 legislators present voted in favor.

    โ€œThis is a fundamental step to contain the risk facing the national economy,โ€ Herrero said in a statement.

    Given a favorable ruling by the Supreme Court, the legislation would require a second approval by Congress and then need presidential ratification before becoming law.

    U.S. companies Intel Corp. (INTC), International Business Machines Corp. (IBM), Hewlett-Packard Co. (HPQ), and Oracle Corp. (ORCL) have units in Costa Rican free-trade zones.

    By Adam Williams

    From Bloomberg

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