QCOSTARICA — Low personal income tax collection continues to be a constant in Latin America, according to the Organization for Economic Cooperation and Development (OECD).
In Costa Rica, non-compliance with this tax among individuals with profit-making activities reached 82.7%, while among salaried workers it drops significantly to 3.5%.
This phenomenon is directly related to the high level of informality and low income of many independent workers, a reality shared by several countries in the region.
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“There is a very significant group of working people who do not pay taxes on their income or earnings from their jobs. Without a doubt, this compromises tax systems because, precisely, income tax is one of the main sources of revenue in any tax system, and one of the most progressive,” said Luis Vargas, an economist at the University of Costa Rica.
High Informality
According to data from Costa Rica’s Instituto Nacional de Estadística y Censo (INEC) – National Institute of Statistics and Census, for the first quarter of 2025, the total number of people employed in informal employment was estimated at 824,000.
In addition, the number of self-employed workers reached 545,000.
“Paying social security contributions is one of the most important tax burdens. The possibility of reducing them has been discussed so that more people enter the formal market and begin to grow so they can pay income tax,” Vargas added.
Given this scenario, the OECD recommended improving the tax’s design to increase its progressivity, promote equity, and increase revenue collection.
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“It is essential that each country’s design, as well as possible reforms aimed at increasing its effectiveness, reflect a balance between the principles of administrative simplicity, distributive equity, and revenue adequacy,” the OECD explained.
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