New works should pay 4% until June 2021, sector proposes

Christine Jenkins cjenkins@larepublica.net | Friday 04 October, 2019

Construction plans A new bill proposes a Value Added Tax rate of 4% until June 2021 and 8% until June 2022 for new construction plans. Shutterstock / The Republic.

Allowing the gradual application of Value Added Tax for new construction projects is the intention behind a bill.

The initiative proposes that a VAT of 4% on services be charged until June 30, 2021, 8% until June 2022 and a full 13% from July 2022 for plans submitted from October 1.

The original intention of the tax reform was that this tiered treatment be applied to all projects, not only those that were approved before October 1 as interpreted from the final wording, according to the Federated College of Engineers and Architects.

“The bill comes to clarify the issue of gradualness and, we just want to emphasize the importance that before we have a crisis in the construction area, we can have this project approved,” said Ileana Aguilar, President of the College.

The current law implies that projects will be built at the same time paying full 13%, while those approved before September 30 pay a lower rate over the next three years.

The current treatment will mean an immediate increase of around 10%, where the greatest impact will be on the construction of structures with cheap materials, whose costs weigh more services, according to estimates of the College and the Costa Rican Chamber of Construction.

From the Government of former President Laura Chinchilla, it was clear that the sector would be given an extension of up to a year to, then, gradually pay VAT, explained the representatives of the sector at a press conference with the deputies Luis Fernando Chacón and David Gourzong, of Liberation.

However, the idea was that the first projects, approved before October 1, were exempt the first year with a 0% rate, while the others entered directly at 4%.

Hence the distortion that is now intended to correct with the new project, which would have the support of the fractions by rescuing their original intention, according to the deputies, both engineers.

VAT FOR CONSTRUCTION

The engineering, architecture, topography and civil works construction services provided to the new registered projects would be subject to the following gradual rate, as proposed by the bill (percentage figure for VAT).

VAT period From October 2019 to June 2021   4 From July 2021 to June 2022         8 From July 2022                                 13 “If this progressivity were not achieved, the slowdown in the sector would be deepened, which would even affect tax collection due to the impact of construction on the rest of the sectors of the economy,” added Esteban Acón, president of the Chamber.

The Attorney General’s Office confirmed what was established by the Treasury on September 13, leaving the time trial sector to endorse the plans before the end of the month.