April 5, 2012 / 12:36 AM / 5 years ago

Resignation scandal puts Costa Rica tax reform in jeopardy

SAN JOSE, Costa Rica, April 4 (Reuters) - A fiscal reform planned by Costa Rican President Laura Chinchilla is in increasing jeopardy following the resignations of two senior Finance Ministry officials in as many days due to a tax-dodging scandal.

The director of direct taxation, Francisco Villalobos, resigned late on Tuesday, one day after Finance Minister Fernando Herrero stepped down over reports in newspaper La Nacion that the two were evading taxes.

Their departure threatens passage of the fiscal bill, which needs opposition support to pass through congress.

The proposed law aims to raise tax revenue by the equivalent of 1.5 percentage points of gross domestic product (GDP) and reduce a ballooning fiscal deficit.

It would also impose a 15 percent tax on companies working in the country’s tax-free zones after 2015.

“This is a very strong blow for those who have pushed for this bill and it’s harder to defend it now”, said Juan Carlos Mendoza, head of Congress and a member of the opposition Citizens’ Action Party.

Costa Rica’s fiscal deficit has swollen to more than 5 percent of gross domestic product (GDP), one of the highest in Latin America, after the government ramped up spending during the global crisis.

For the tax reform to pass, Chinchilla needs support from all 24 members of her centrist National Liberation Party in congress and at least five more votes from members of other parties to secure a majority in the 57-seat house.

The government has said Vice President Luis Liberman has temporarily taken over the finance ministry.

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