## cr18124-costaricata

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### Preface — Mission, scope, and purpose
- Mission provided by IMF Fiscal Affairs Department (FAD) in response to a request from Mr. Fernando Rodríguez Garro, Vice Minister for Revenues.
- Mission dates and composition:
  - July 26 to August 8, 2017: mission led by Mr. Junji Ueda (FAD) with Mr. Miguel Pecho (FAD).
  - November 23 to 29, 2017: second visit with Mr. Patricio Barra (FAD short-term expert).
- Data and institutional cooperation:
  - Cooperation acknowledged from MOF officials Jorge Richard Muñoz Núñez and Oscar Guillermo Fonseca Villalobos.
  - Central Bank of Costa Rica (BCCR) provided national accounts data and explanations.
- Purpose:
  - Apply IMF’s RA-GAP methodology to estimate tax gaps for GST and CIT in Costa Rica and assess MOF’s existing tax gap analyses.
  - For GST: estimate PV_C (potential GST revenue under current policy), compliance gap, PV_R (potential revenue under standard rate on all final consumption), and policy gap (with decomposition including expenditure gap).
  - For CIT: estimate potential CIT liability from gross operating surplus (GOS) of non‑financial corporations and compare with declared CIT base/liability.

### Executive summary — GST: methodology, key definitions, and headline findings
- Methodology and definitions:
  - PV_C = potential GST revenue under current policy.
  - Compliance gap = PV_C − net accrued collections.
  - PV_R = potential GST revenue if the standard rate applied to all final consumption without exemptions.
  - Policy gap = PV_R − PV_C; further decomposed (expenditure gap emphasized).
- Main GST findings (2012–2016):
  - Compliance gap as % of PV-C increased from 29 percent in 2012 to 31 percent in 2016.
  - Compliance gap in 2016 equivalent to 1.9 percent of GDP.
  - Estimated GST policy gaps were around 4 percent of GDP from 2012 to 2016.
  - Policy gaps relative to PV-R were between 37 percent and 40 percent.
  - Expenditure gap (GST expenditure gap) was stable between 2.9 percent of GDP and 3.3 percent of GDP and accounted for most of the overall policy gap since 2012.
  - The policy gap has been consistently higher than the compliance gap.
  - Sector concentration: large GST compliance gaps relative to GDP observed in manufacturing (C), trade (G), and hotels and restaurants (I).
  - C-efficiency ratio:
    - Average C-efficiency ratio in Costa Rica between 2012 and 2016 was 46 percent.
    - Average C-efficiency ratio in Latin American and Caribbean comparator was 53 percent.
- Measurement and data notes:
  - MOF annual GST revenues are based on net cash collections during a calendar year.
  - Net accrued collections constructed by summing declared values from February to January next year.
  - Net accrued collections from D104 have been smaller than MOF published revenue data; differences driven by timing effects and treatment of excess credits/offsets.

### Executive summary — CIT: methodology, scope, and headline findings
- Scope and methodology:
  - RA-GAP CIT gap methodology applied to non-financial corporations (S11), excluding FTZ (Regímenes Especiales).
  - Potential CIT liability estimated from GOS with adjustments for conceptual differences between GOS and CIT tax base/liability.
  - Period: 2012–2015 (availability of GOS and related data).
- Main CIT findings (2012–2015):
  - CIT gap as % of potential base decreased from 65 percent in 2012 to 60 percent in 2015.
  - Estimated CIT gap equivalent to 2.7–3.1 percent of GDP during the period; specifically 2.7 percent of GDP in 2015.
  - Declared CIT base relative to GDP increased while potential CIT base relative to GDP slightly decreased.
  - Potential CIT liability estimated between 4.5 percent and 4.8 percent of GDP during the period.
  - Aggregate declared current year CIT base: 6.4 percent of GDP (2012) to 6.8 percent of GDP (2015).
  - Aggregate declared CIT liability: 1.7 percent of GDP (2012) to 1.9 percent of GDP (2015).
- Key conceptual indicators:
  - CIT base gap = potential C-TB minus declared C-TB.
  - CIT gap = potential CIT liability minus declared CIT liability.
  - Rationale: use both base and liability gaps to account for effects of carried-over losses and annual fluctuations.

### Detailed GST findings, sectoral patterns, and dynamics
- Aggregate potential and actual GST (% of GDP) — Appendix table:
  - PV-R: 2012 10.2, 2013 10.3, 2014 10.3, 2015 10.1, 2016 10.0
  - PV-C: 2012 6.4, 2013 6.2, 2014 6.3, 2015 6.2, 2016 6.2
  - Net accrued GST: 2012 4.6, 2013 4.5, 2014 4.4, 2015 4.3, 2016 4.3
  - Total GST revenue (MOF published): 2012 4.8, 2013 4.7, 2014 4.7, 2015 4.6, 2016 4.5
- Compliance gap trajectory and magnitude:
  - Compliance gap (% of PV-C): 2012 29.1, 2013 27.9, 2014 31.3, 2015 31.1, 2016 31.1
  - Compliance gap (% of GDP): 2012 1.9, 2013 1.7, 2014 2.0, 2015 1.9, 2016 1.9
- Policy gap and expenditure gap (selected years):
  - Policy gap (% of PV-R) and (% of GDP) with expenditure gap (% of GDP):
    - 2012: 37.0; 3.8; 2.9
    - 2013: 39.9; 4.1; 3.3
    - 2014: 38.4; 3.9; 3.2
    - 2015: 38.4; 3.9; 3.2
    - 2016: 38.2; 3.8; 3.3
- Sectoral potential (PV-C), actual, and compliance gaps (% of GDP and % of PV-C where noted):
  - PV-C largest sectors: trade (G) ~2.68%–2.77% of GDP (2012–2016); manufacturing (C) decreased from 1.77% to 1.57% of GDP (2012–2016).
  - Actual GST revenues by sector (2012→2016): manufacturing (C) 0.99→0.79; trade (G) 2.17→2.24; hotels/restaurants (I) 0.28→0.32.
  - Compliance gaps by sector (% of GDP): manufacturing (C) ~0.78% (2012) to 0.78% (2016); trade (G) 0.60%→0.44%; hotels/restaurants (I) 0.44%→0.41%.
  - Compliance gaps relative to PV-C (% of PV-C): C: 2012 60.7, 2013 60.8, 2014 65.7, 2015 63.9, 2016 64.9; G: 49.7→41.9; I: 61.5→56.4.
- Drivers of aggregate GST performance:
  - Decline in GST/GDP after 2012 mainly explained by declining C-efficiency.
  - Changes in C-efficiency decomposition (2013–2016) indicate negative contributions from increases in expenditure gap and compliance gap after 2013, partially offset by decreases in non-taxable gap and cash/accrual differences.
  - C-efficiency ratio values (Costa Rica): 2012 47.1, 2013 45.9, 2014 45.3, 2015 45.1, 2016 45.4.
- Measurement and estimation caveats:
  - Net accrued collections built from D104 declarations; actual collections classified by taxpayers’ primary activity can misalign with national accounts establishment-based classification.
  - Exemptions for specific purchasers and special regimes (FTZ) required adjustments: FTZ treated as exempt; aggregated MOF tax expenditure items subtracted from PV-C because SUT could not fully capture purchaser-specific exemptions.
  - SUT detailed to 2015; PV-C for 2016 extrapolated from 2015 for 15 activities using macro data.

### Detailed CIT findings, components, and sectoral patterns
- Key steps and aggregate values (% of GDP) — Table summary (selected rows):
  - GOS (S11): 2012 25.1, 2013 24.0, 2014 24.2, 2015 24.3
  - Gross operating surplus for Regímenes Especiales (RE): 2012 2.0, 2013 1.9, 2014 2.0, 2015 2.1
  - Potential C-NTB: 2012 14.2, 2013 15.1, 2014 14.6, 2015 14.2
  - Potential C-TB: 2012 18.2, 2013 17.7, 2014 17.9, 2015 16.8
  - Potential TB (after carried-over loss deduction): 2012 18.1, 2013 17.6, 2014 17.8, 2015 16.8
  - Effective CIT rate to TB: 2012 27.7%, 2013 27.6%, 2014 27.6%, 2015 27.7%
  - Potential CIT liability (after credits): 2012 4.8, 2013 4.6, 2014 4.7, 2015 4.5
- GOS-to-tax base conceptual adjustments:
  - Reconcile GOS → FAP → C-NTB → C-TB → TB via items: property incomes, depreciation (CFC), transfers, non-deductible costs, non-taxable incomes, current-year losses, carried-over losses.
  - Potential CIT liability = potential CIT base × effective CIT rate − tax credits.
- CIT gap and base gap magnitudes:
  - CIT gap (% of potential liability): 2012 65.2, 2013 66.0, 2014 64.7, 2015 59.6
  - CIT gap (% of GDP): 2012 3.1, 2013 3.1, 2014 3.0, 2015 2.7
  - CIT base gap values (Figure 27): 2012 64.9, 2013 65.8, 2014 64.6, 2015 59.4
- Sectoral potential vs declared CIT base in 2012 (% of GDP):
  - A: Potential 1.82; Declared 0.22
  - C: Potential 4.35; Declared 1.30
  - F: Potential 2.17; Declared 0.29
  - G: Potential 2.81; Declared 2.33
  - M, N: Potential 2.04; Declared 0.46
  - (Full sector list in Appendix tables; use sector-level estimates with caution due to classification and data limitations.)
- CIT-efficiency and decomposition:
  - CIT-efficiency ratio for S11: 2013 21.9 percent? (report notes CIT-efficiency ratio 21.9 percent in 2013 to 24.8 percent in 2015 for S11 in narrative; Appendix shows decompositions in Figure 32).
  - Recent increase in CIT-efficiency mainly attributable to a decrease in the CIT base gap; other positive contributors include smaller differences between GOS and FAP and smaller differences between FAP and C-NTB.
- Data and estimation caveats:
  - FTZ GOS accounted for 8.1–8.7 percent of total GOS of non-financial corporations during the period and were excluded.
  - Adjustments for carried-over losses and other tax items rely on declared large-corporation data; assumed ratios applied to smaller firms where data absent.
  - Period alignment issues: national accounts are calendar-year; most CIT returns follow financial year October–September.

### Recommendations — GST and CIT gap estimation and revenue management
- Institutional and methodological recommendations:
  - Maintain and continue MOF practice of an analytical unit dedicated to estimating compliance gaps and tax expenditures and regularly publish results.
  - Regularly update estimates by incorporating newly available data and use the RA-GAP methodology with updated national accounts and integrated economic tables.
  - Adopt RA-GAP to utilize national accounts to estimate potential tax base and liability while fully incorporating current policy structure and decomposing gaps by sectors.
- Data, classification, and modeling improvements:
  - Make estimation model assumptions (especially exemption ratios by commodity heading) explicit and manageable for review and modification.
  - Systematically manage and retrieve data to quantify purchaser-specific exemptions from individual GST returns and regime-specific information.
  - Improve allocation of potential tax base into sectors using individual exports data from Customs to maintain consistency with aggregate national accounts.
  - Keep consistency between official tax expenditure analysis and compliance gap estimation; use same policy parameters and data sets.
  - Improve sector allocation of actual base and liability to align with national accounts classification by incorporating more information from BCCR.
- Operational and compliance management links:
  - Use sector compliance gap analysis to inform compliance risk management and link top-down RA-GAP estimates with internal taxpayer information and audit results.
  - Compare RA-GAP top-down estimates with MOF internal knowledge to strengthen operational compliance risk management.
- Specific GST collection monitoring:
  - Construct systematic net accrued GST series based on declarations to check underlying trends, excluding offsetting effects of excess credits.
  - Monitor carried‑over excess credits and explicitly quantify GST arrears to decompose compliance gaps into assessment and collection gaps.

### Data inputs, model application, and appendices (data sources and model notes)
- RA-GAP inputs and data sources used (selected):
  - Supply and use tables and import matrices (BCCR) for 2012–2015; Integrated economic accounts 2012–2015; National accounts 2012–2016 (base year 2012); Balance of payments 2010–2016; Imports/exports 2012–2016 (MOF); direct purchases by non-residents 2012–2015 (BCCR).
  - Actual revenue and declaration data: GST declaration data (D104) 2012–2016; CIT declaration data (D101) 2012–2016; Total revenue of central government series.
- Key RA-GAP modeling choices:
  - PV-C modeled using SUT with rates, exemptions, and creditable ratios reflecting GST Law and Article 14 changes (pre/post April 2013).
  - PV-R2 (normative GST) excludes only specified non-taxable items (financial services, residential rent, non-market public services, fuels) and assumes full creditability of purchases.
  - FTZ treated as exempt in PV-C; purchaser-specific exemptions subtracted from modeled PV-C using MOF tax expenditure aggregates.
  - CIT potential base derived from GOS after sequential adjustments: subtract RE GOS; adjust GOS → FAP (property incomes, depreciation, transfers); adjust FAP → C-NTB (non-deductible costs, non-taxable incomes); add current-year losses to obtain C-TB; deduct carried-over losses per legislation to obtain TB; apply effective CIT rate and subtract tax credits.
- Tabulated appendix facts (selected figures preserved exactly):
  - GST PV-R/PV-C/Net accrued (% of GDP) 2012: 10.2 / 6.4 / 4.6; 2016: 10.0 / 6.2 / 4.3.
  - GST compliance gap (% of PV-C) 2012 29.1, 2016 31.1; compliance gap (% of GDP) 2012 1.9, 2016 1.9.
  - Policy gap (% of PV-R) 2012 37.0, 2016 38.2.
  - CIT gap (% of potential liability) 2012 65.2, 2015 59.6; CIT gap (% of GDP) 2012 3.1, 2015 2.7.
  - Potential CIT liability (% of GDP) 2012 4.8, 2015 4.5.
  - MOF tax expenditure GST (% of GDP): 2012 3.04, 2013 3.13, 2014 2.94, 2015 2.85, 2016 2.89.
  - MOF tax expenditure total (2010–2016 average reported): 5.09 percent of GDP.

*Source: IMF Fiscal Affairs Department staff report (RA-GAP analysis for Costa Rica).*

### PREFACE _________________________________________________________________________________________ 7

### PREFACE

### Mission and scope
- In response to a request from Mr. Fernando Rodríguez Garro, Vice Minister for Revenues, the Fiscal Affairs Department (FAD), IMF, provided a tax gap analysis for the general sales tax (GST) and corporate income tax (CIT) in Costa Rica.
- Mission dates and composition:
  - July 26 to August 8, 2017: mission led by Mr. Junji Ueda (FAD) with Mr. Miguel Pecho (FAD) visited San Jose to collect data and information required for RA-GAP analysis.
  - November 23 to 29, 2017: second visit with Mr. Patricio Barra, an FAD short-term expert, to deliver results and assess MOF estimates.
- Data and institutional cooperation:
  - Acknowledgement of cooperation from MOF officials, specifically Jorge Richard Muñoz Núñez and Oscar Guillermo Fonseca Villalobos.
  - Central Bank of Costa Rica (BCCR) provided national accounts data and explanations indispensable for the analysis.

### Purpose
- Apply IMF’s RA-GAP (Revenue Administration – Gap Analysis Program) methodology to estimate tax gaps for GST and CIT in Costa Rica and assess MOF’s existing tax gap analyses.

---

### EXECUTIVE SUMMARY — GST: methodology and definitions
- RA-GAP GST gap methodology estimates:
  - PVC: potential GST revenue under current policy.
  - Compliance gap: difference between PVC and net accrued collections.
  - PVR: potential GST revenue if the standard rate applied to all final consumption without exemptions.
  - Policy gap: difference between PVR and PVC.
- Decomposition: policy gap further decomposed (expenditure gap component highlighted in the report).

### Main findings for GST gap (2012–2016)
- Compliance gap trajectory:
  - Increased from 29 percent in 2012 to 31 percent in 2016 (compliance gap as % of PV-C).
  - Compliance gap in 2016 equivalent to 1.9 percent of GDP.
- Comparative context:
  - The estimated compliance gap is higher than the average VAT compliance gaps of European countries and Latin American countries (reports cited: Poniatowski et al., 2017; CIAT, 2012).
- Sector concentration of compliance gaps:
  - Large GST compliance gaps relative to GDP observed in manufacturing (C), trade (G), and hotels and restaurants (I).
- Policy gap levels:
  - Estimated GST policy gaps were around 4 percent of GDP from 2012 to 2016.
  - Policy gaps relative to PVR have been between 37 percent and 40 percent.
  - Most of the GST policy gap consists of the GST expenditure gap, indicating extensive exemptions; the legal tax base for GST is much smaller than total final consumption due to exemptions.
- Relative magnitudes:
  - The policy gap has been consistently higher than the compliance gap.

### Executive summary — Figures referenced (summary)
- Figure 1: Potential GST Revenues and GST Gaps in Costa Rica (staff calculations).
- Figure 2: Compliance Gaps for GST in Costa Rica (staff calculations).
- Figure 3: GST Compliance Gaps by Sectors (staff calculations).
- Figure 4: Policy Gaps for GST in Costa Rica (staff calculations).

---

### EXECUTIVE SUMMARY — CIT: methodology and definitions
- RA-GAP CIT gap methodology for non-financial corporations (excluding FTZ) for 2012–2015:
  - Potential CIT liability estimated from gross operating surplus (GOS) of non-financial corporations, with adjustments for conceptual differences between GOS and CIT tax base/liability.
  - Comparisons made between potential liabilities/base and declared CIT liabilities/base.

### Main findings for CIT gap (2012–2015)
- CIT gap trajectory:
  - Estimated CIT gap decreased from 65 percent of potential base in 2012 to 60 percent in 2015 (CIT gap as % of potential liability).
  - Estimated level of the CIT gap was equivalent to 2.7 percent of GDP in 2015.
- Drivers:
  - The estimated gap reflects an increase in the declared CIT base relative to GDP, while the estimated potential CIT base relative to GDP was slightly decreasing during the period.
- Figures referenced (summary):
  - Figure 5: CIT Gaps in Costa Rica (staff calculations).
  - Figure 6: Potential CIT Base and Declared CIT Base (staff calculations).

---

### Recommendations (executive summary)
- Maintain and continue the MOF practice of having an analytical unit dedicated to estimating compliance gaps and tax expenditures for major taxes, and regularly publish results.
- Regularly update estimates by incorporating newly available data.
- Adopt RA-GAP methodology using updated national accounts data to streamline and upgrade GST and CIT gap estimation:
  - Advantage: utilize national accounts to estimate potential tax base and liability while fully incorporating current policy structure and decomposing gaps by economic activities (sectors).
- Use sector compliance gap analysis to inform compliance risk management and link top-down estimates with internal taxpayer information.
- Compare RA-GAP top-down compliance gap estimates with MOF internal knowledge to strengthen operational compliance risk management.
- Improve sector allocation of actual base and liability to align with national accounts sector classification:
  - Current issue: actual base/liability classified by primary activities of taxpayers reported to MOF, while national accounts use business establishment classification.
  - Recommendation: incorporate more information from BCCR to reflect its classification for allocating actual base and liability, improving sector gap analysis and compliance risk management.

---

### I. BACKGROUND — Objectives and scope
- RA-GAP provides comprehensive quantitative analysis of tax gaps between potential revenues and actual collections, focusing on VAT/GST and CIT with sectoral breakdowns.
- Purpose of this report:
  - Provide estimates of GST and CIT tax gaps in Costa Rica using RA-GAP.
  - For GST: estimate compliance gap and policy gap.
  - For CIT: estimate differences between potential CIT base/liability and declared values.
- The report reviews MOF methodologies for 2010–2013 and provides recommendations to improve top-down estimations consistent with RA-GAP.

### A. Main Feature of GST in Costa Rica (policy design during the period)
- Rate:
  - Standard rate: 13 percent applied to taxable goods and services except:
    - wood: 10 percent
    - electricity for residence: 5 percent
- Tax base — goods:
  - Supplies of goods are taxable except for exported goods, items consisting of basic food basket, medicines, kerosene, books, agricultural inputs, and electrical energy which does not exceed 250 kW/h.
  - Suppliers of these goods can claim input tax credit, effectively resulting in zero-rating.
- Tax base — services:
  - Explicit list of taxable services, including hotels and restaurants, general insurance, telecommunication, repair of goods, washing and maintenance of motor vehicles, and others.
  - Other services are not subject to GST and input tax credits for purchases to provide such services are not allowed.
- Specific exemptions (by other laws):
  - Examples include purchases/imports of medical supplies and equipment; imports of machinery, equipment, supplies for agriculture; purchases/imports for public universities; investment projects under agreements with international organizations; purchases/imports by government agencies and municipalities; purchases/imports by businesses operating under Free Trade Zone (FTZ) Regime.
- Input tax credit (Article 14):
  - General limitation: purchased taxable goods and services used for taxable sales; administrative overhead costs not allocated to direct production costs are not allowed.
  - After April 2013, input tax credits allowed for:
    - (i) Raw material, supplies, packages and packaging materials, machinery, equipment, parts and spares, electric energy, and other goods used in production, commercialization or distribution.
    - (ii) Insurance premiums for protection of goods, machinery and supplies used in production, commercialization or distribution.
    - (iii) Equipment and material used in waste management and quality control.
  - Before April 2013, input tax credits were more restricted (only for purchases physically incorporated or directly used for production/rendering of taxable goods/services).
  - Excess credits:
    - Can be carried forward and used to offset GST liabilities in subsequent months.
    - If insufficient output tax expected within three months, taxpayers may request to use excess credits to offset other tax liabilities (Compensaciones).
    - Refunds allowed for remaining excess credits.
    - Scheme exists to authorize purchases free of GST (Ordenes especiales de compra) for entities with structural excess credits, including exporters.
- Threshold and registration:
  - No quantitative threshold for registration; entities providing goods and services as businesses must submit GST returns (D104).
  - Small taxpayers in specific industries can apply to a simplified regime and submit D105.
  - GST liability for an individual taxpayer is calculated quarterly by applying factors to purchases by taxpayers.
- Withholding:
  - Advance payment mechanism: companies processing credit/debit card payments withhold up to 6 percent of transaction values from GST-liable customers; withheld customers can deduct the amount on their tax declaration.

*Source: IMF Fiscal Affairs Department staff report (RA-GAP analysis for Costa Rica).*

### 5. The annual GST revenues published by the MOF are based on net cash collections

### 5. The annual GST revenues published by the MOF are based on net cash collections during a calendar year.

### Measurement and recent trends in GST revenues
- Total GST revenue as a percent of GDP gradually declined from 4.8 to 4.5 percent during the period 2012-2016.
- The annual GST revenues published by the MOF are based on net cash collections during a calendar year.
- Monthly GST declarations are submitted and paid in the next month; net accrued collection in a year is calculated by summing declared values from February to January next year to reflect liabilities arising January–December.
- Net accrued collections calculated from GST declaration data (D104) have been smaller than the revenue data published by the MOF.

### C-efficiency ratio and international comparison
- The C-efficiency ratio (actual collections relative to theoretical revenues under a perfectly enforced tax at the standard rate on all final consumption, PV_R) tracked movements similar to the GST/GDP ratio.
- Average C-efficiency ratio in Costa Rica between 2012 and 2016 was 46 percent.
- Average C-efficiency ratio in Latin American and Caribbean countries (comparator) was 53 percent.

### Drivers of differences between MOF revenue series and net accrued collections
- Two main reasons for differences:
  - Timing effects: cash collected in a calendar year may reflect liabilities arising in different months/years because of declaration/payment timing conventions.
  - Treatment of excess credits: GST excess credits can be used to clear other tax liabilities; MOF revenue data do not subtract the negative impact of offsets, so MOF data can exceed net accrued collections.
- Offsets of GST excess credits against other taxes reduce cash collections recorded for those other taxes relative to declared liabilities.

### Definition and decomposition of potential GST measures and gaps
- Potential GST revenue under current policy: PV_C.
- Potential revenue under a theoretical GST applying the standard rate to all final consumption without exemptions: PV_R.
- Compliance gap = PV_C − net accrued collections.
- Policy gap = PV_R − PV_C.
- C-efficiency ratio = actual GST collections / PV_R.
- Note: In calculating the policy gap, it is assumed taxpayers’ behavior would not be different under the normative policy frameworks (i.e., estimates are indicators of policy efficiency, not necessarily additional revenue realizable upon reform).

### Estimation inputs and modelling choices for PV_C
- RA-GAP methodology applied to supply and use tables (SUT) to estimate sectoral VAT/GST bases by applying rates, exemptions, and creditable ratios to sectoral value-added and imports.
- SUTs used: years 2012–2015, with 183 commodities and 138 economic activities. PV_C for 2016 was estimated by extrapolating 2015 values for 15 economic activities using available macroeconomic data on production, imports, and exports.
- Rates, exemptions, and creditable ratios set to reflect GST policy each year; creditable ratios adjusted to reflect Article 14 change in April 2013 (parameters set differently before and after the change).
- Special regimes:
  - Free Trade Zone (FTZ) activities treated as exempt (SUT records FTZ in separate columns under ‘Regímenes Especiales’).
  - Exemptions for local sales to specific purchasers (from other laws) could not be fully incorporated into the SUT-based model; aggregate values reported in MOF tax expenditure analysis (‘Exenciones Compras Locales Concretas’ and ‘Exenciones Compras Locales Genéricas’) were subtracted from modeled potential GST revenue. This treatment assumes no downstream taxation (no cascading effects) for those exempted purchases.
  - Simplified regime for small taxpayers: potential and actual GST revenues both exclude small taxpayers; GST liability for these taxpayers each year were subtracted from both estimated potential and actual GST revenues.

### Estimated potential GST revenues and compliance performance
- Estimated PV_C (potential GST revenues under current policy) were stable between 6.2 and 6.4 percent of GDP during the period.
- Because the restriction on input tax credits was loosened in April 2013, estimated potential GST revenues became slightly lower thereafter due to increased creditable inputs in the model.
- Estimated GST compliance gap:
  - 2012: 29 percent (of PV_C)
  - 2016: 31 percent (of PV_C)
  - The compliance gap in 2016 was equivalent to 1.9 percent of GDP.
- The estimated compliance gap for Costa Rica is higher than the averages for European countries and Latin American countries.

### Sectoral distribution of potential GST base (PV_C)
- Large GST base estimated in sectors with limited taxable goods and services: trade (G), manufacturing (C), hotels and restaurants (I), and information and communication services (J).
- Potential revenues relative to GDP in manufacturing sector show a decreasing trend since 2012 because the share of value-added in manufacturing decreased from 14.8 percent to 12.3 percent, while the share of value-added in services increased according to national accounts data.

---
*Source: Staff calculations based on data provided by MOF and BCCR (excerpts from chapter "5. The annual GST revenues published by the MOF are based on net cash collections").*

### 29. As discussed in Section I, a series of the net accrued collections was used to

### cr18124-costaricata - 29. As discussed in Section I, a series of the net accrued collections was used to

### Methodology for Calculating Compliance Gaps
- Net accrued collections series:
  - Calculated as differences between debits and credits for individual taxpayers from GST declarations (D104) during a year.
  - Added: collection of import GST at the Customs, and assessments by the tax administration.
  - Subtracted: net increases in arrears during a year.
- Actual GST collections classification:
  - Classified into economic activities using information of taxpayers registered to the MOF.
  - Sector classification is by primary activity of individual taxpayers; multi-sector large taxpayers can cause inconsistencies with national accounts classification.

### Decomposition: Assessment Gap and Collection Gap
- Definitions:
  - Collection gap = actual collections minus total amount of GST declared or assessed as due by the tax administration.
  - Assessment gap = amount of GST declared or assessed minus potential GST.
  - Collection gap = identified portion; assessment gap = unidentified portion.
- Empirical magnitudes (Costa Rica, 2012–2016):
  - Collection gaps (measured by increases in arrears) stayed at the level of 0.1 percent of GDP.
  - Overall compliance gaps were between 1.7 and 2.0 percent of GDP from 2012 to 2016.
- Sectoral observations:
  - Large actual GST collections observed in trade (G), manufacturing (C), electricity, gas, and water (D, E), and hotels and restaurants (I).
  - Large compliance gaps relative to GDP observed in manufacturing (C), trade (G), and hotels and restaurants (I).
  - Within manufacturing, large gaps concentrated in food producers (including meats and dairy products) and repair services for machinery and equipment.
  - Relative compliance gaps (relative to domestic potential revenues) were large in manufacturing (C) and hotels and restaurants (I); relatively smaller in trade (G).

### Possible Sources of Estimation Errors
- National accounts issues:
  - If national accounts underestimate economic activities or imports (e.g., undervaluation of imports, omitting non-observed economic activities), potential revenues and gaps will be underestimated.
- Sector allocation of capital formation:
  - Data by individual economic activities cover a limited period; assumed ratios are the same as 2012.
- Sector allocation of inventories and exports:
  - Data unavailable; assumed ratios of changes in inventory and exports are the same as ratio of production or imports.
- Extrapolation to 2016:
  - Detailed SUTs available up to 2015; 2016 estimates extrapolated using macroeconomic data and subject to revision.
- Policy parameter issues:
  - Potential revenues depend on parameters for exemptions and creditable ratios, some based on limited data (especially domestic sales).
- Sector classification issues:
  - Multi-sector operations by large entities or discrepancies between national accounts and taxpayer registration can bias sector gaps.
  - Special regimes allowing purchases without paying GST affect actual sector allocation of net GST revenues while potential GST allocation does not consider the regime.

### Estimation of GST Policy Gap and Its Components
- Definitions:
  - Policy gap = theoretical revenue applying the standard rate to all final consumption (PV_R) minus potential revenue under current policy (PV_C).
  - Expenditure gap = PV_C minus potential revenues under a normative GST policy structure (PV_R2).
  - Non-taxable gap = effects of items outside normative GST policy (financial intermediation service, rent for residential property, non-market public services, fuels subject to a replacement tax, and final consumption by non-residents depending on PV_R vs PV_R2 definitions).
- Empirical magnitudes (2012–2016):
  - Policy gaps were around 4 percent of GDP from 2012 to 2016.
  - Policy gaps relative to PV_R were between 37 percent and 40 percent.
  - Expenditure gap (GST expenditure gap) was stable between 2.9 percent of GDP and 3.3 percent of GDP and accounted for most of the overall policy gap since 2012.
- MOF GST tax expenditures (relative to GDP) per MOF estimates:
  - 2012: 3.04 percent
  - 2013: 3.13 percent
  - 2014: 2.94 percent
  - 2015: 2.85 percent
  - 2016: 2.89 percent

### Sector Potential Revenues under a Normative GST (PV_R2) and Policy Implications
- PV_R2 estimates via RA-GAP model:
  - PV_R2 much larger than PV_C in many service sectors, notably business services (M, N), construction service (F), and transportation service (H).
  - In manufacturing (C) and trade (G), PV_R2 not significantly different from PV_C because output tax and input tax credit both increase in a full VAT system.
- Policy implication:
  - Modernizing the current GST to a full-fledged VAT system would increase tax liabilities in service sectors currently largely outside the scope of taxation.
  - Implementing a broader VAT would require enhanced registration, filing, and payment enforcement, and coordinated efforts with revenue administration given many affected entities are small- and medium-sized enterprises.

### GST Revenue Performance and C-efficiency Analysis
- Identity decomposing annual changes in GST/GDP into statutory rate, final consumption/GDP, and C-efficiency.
- Findings:
  - Recent decline of GST-GDP ratio after 2012 mainly explained by declining C-efficiency ratio.
  - After 2015, decline in ratio of final consumption to GDP negatively contributed to GST revenue performance.
  - No change in the statutory rate during the period.
- Decomposition of year-on-year changes in C-efficiency (cash collections basis) into four components:
  - compliance gap changes,
  - expenditure gap changes,
  - non-taxable gap changes,
  - difference between cash collections and net accrual collections.
- Empirical drivers (2012 onward):
  - Negative changes in C-efficiency since 2012 mainly attributable to an increase in the expenditure gap and an increase in the compliance gap after 2013.
  - Decrease in the non-taxable gap partially offset the negative effects.
  - Positive contribution from cash/accrual difference indicates cash collection growth exceeded net accrued collection growth.

### Recommendations to Improve GST Gap Estimation and Revenue Management
- Maintain and continue MOF practice:
  - Keep the analytical unit dedicated to estimating compliance gaps and tax expenditures and regularly publish results; continue updating estimates with new data.
- Adopt and use RA-GAP methodology:
  - Use updated national accounts data and recently published SUTs (base year updated to 2012) to streamline and upgrade gap estimation and estimate sector potential revenues simultaneously while fully incorporating current GST policy structure.
- Strengthen sector analysis linkage to compliance management:
  - Use sector compliance gap analyses to support compliance risk management and to design risk-based approaches in tax and customs administration.
  - Compare RA-GAP top-down estimates with internal taxpayer compliance knowledge and information.
- Improve sector allocation consistency:
  - Adjust sector allocation of actual base and liability to align with national accounts classification (use more information from the BCCR) to improve sector gap analysis and compliance risk management.

*Source: Staff calculations and analysis in the provided document excerpt.*

### 52. To improve the estimation of the potential GST revenues further, there are several

### cr18124-costaricata - 52. To improve the estimation of the potential GST revenues further, there are several

### Improvements to GST potential revenue estimation
- Make the assumptions used in the estimation model for potential revenues more explicit and understandable, especially for the ratio of exemptions for individual heading of the commodities, so that assumptions for policy parameters can be easily reviewed and modified.
- Systematically manage and retrieve necessary data to quantify purchaser specific exemptions in local market from individual GST returns and other information under specific regimes for GST exemptions.
- Improve the allocation of the potential tax base into sectors, especially by using individual exports data recorded by the Customs, keeping the consistency with aggregate national accounts data.
- Keep consistency between the official tax expenditure analysis and the compliance gap estimation; use the same policy parameters and the same data set to estimate the impacts of exemptions in the estimation of both the compliance gap and the tax expenditure.

### Treatment of actual GST collections
- Make a series of net accrued GST collections based on declarations for debits and credits in a systematic way to check underlying trend of GST revenue performance, excluding effects of offsetting against GST liabilities in subsequent periods and other tax liabilities using excess credits.
- Monitor carried-over excess credits to avoid an insidious increase in future liability for the government.
- Explicitly quantify and monitor GST collection arrears to appropriately evaluate GST revenue performance; this enables decomposition of overall compliance gaps into the assessment gaps and the collection gaps.

### Framework for estimation of the CIT gap (RA-GAP top-down approach)
- The RA-GAP methodology for CIT gap uses a top-down approach: estimate the potential tax base and revenues from macroeconomic data, account for theoretical differences between national accounts coverage and actual CIT tax base, then compare with declarations and revenues.
- Top-down approach advantages: uses existing data without additional costs and provides a primary evaluation of overall noncompliance.
- Basic condition: macroeconomic data must be compiled independently of declared tax bases (satisfied in Costa Rica; national accounts compiled by the BCCR).

### Conceptual mapping from GOS to CIT tax base
- Starting point: Gross operating surplus (GOS) of corporations in national accounts, conceptually close to EBITDA.
- Three categories of conceptual differences to reconcile GOS to tax base (TB):
  - Differences between GOS and aggregate financial accounting profit (FAP).
  - Differences between aggregate FAP and aggregate current year net tax base (C-NTB).
  - Differences between aggregate C-NTB and aggregate TB, reflecting current-year losses and carried-over losses.
- Key adjustments and relations:
  - [GOS] + [D1.1] – [D1.2] = [FAP]
  - [FAP] + [D2.1] – [D2.2] = [C-NTB]
  - [C-NTB] + [D3.1] – [D3.2] = [TB]
- Important conceptual notes:
  - Receipts of interest/dividends/rent and other items may be present in FAP but not in GOS.
  - C-TB (current-year tax base before carried-over loss deductions) requires adding back absolute value of aggregate current-year losses to C-NTB.
  - Potential CIT liability is obtained by applying CIT statutory rates to potential TB and adjusting for tax credits and additional liabilities.

### Concept of the gap and recommended indicators
- Primary RA-GAP indicators:
  - CIT base gap = potential C-TB minus declared C-TB.
  - CIT gap = potential CIT liability minus declared CIT liability.
- Rationale for using both indicators:
  - CIT gap shows relative magnitude of underreported taxable income effects on potential liability.
  - CIT gap can fluctuate due to deductions for carried-over losses; CIT base gap helps detect yearly changes in underreported incomes.

### Scope of CIT gap estimation in this report
- Target segment: non-financial corporations (S11) excluding corporations operating in free trade zones (FTZ, ‘Regímenes Especiales’).
- Reasons for exclusions:
  - Financial corporations (S12) have complications (FISIM, net insurance premiums, capital gains/losses).
  - General government (S13) and NPISH (S15) lack sufficient data to specify taxable entities and quantify taxable incomes.
  - FTZ corporations receive wide range of corporate tax incentives including profit exemptions; compliance behavior is expected to differ and merits separate analysis.
- Estimation period: from 2012 to 2015 (data on GOS and property incomes of non-financial corporations available only from 2012 to 2015).
- Data/coverage notes:
  - FTZ (RE) GOS accounted for 8.1-8.7 percent of total GOS of non-financial corporations during the period.
  - Aggregate CIT liabilities of financial corporations account for 12-15 percent of total CIT liability during the period.

### Estimation results and key statistics
- CIT base gap for non-financial corporations:
  - It was 65 percent of potential base in 2012, and decreased to 59 percent in 2015.
- CIT gap levels:
  - The estimated level of the CIT gap was equivalent to 2.7–3.1 percent of GDP during the period.
  - The CIT gap relative to potential CIT liability follows the base gap closely because deductions for carried-over losses on tax bases are very small due to tight restrictions on carrying losses forward in Costa Rica.
- Comparative note:
  - The estimated CIT gap in this report covers only non-financial corporations excluding FTZ corporations and therefore is not directly comparable to MOF estimates for all corporations for 2010–2013.

### Technical steps and adjustments used in potential measures
- Scope adjustments:
  - GOS for ‘Regímenes Especiales’ (RE) was subtracted from total GOS of non-financial corporations to exclude FTZ effects.
- Adjustments from GOS to FAP:
  - Receipts and payments of property incomes (interest, distributed income/dividends, other investment income, rent) were used to adjust GOS to FAP using national accounts data.
  - Consumption of fixed capital (CFC) based on historical cost was assumed to represent annual depreciation.
  - Net payments of current and capital transfers, other current taxes, and social benefits were subtracted as assumed net expenses in financial accounting profit.
  - R&D expenses were subtracted because they are not recognized as intermediate consumption in national accounts but are typically immediate costs in financial accounting.
  - No adjustments for foreign source incomes were made, consistent with Costa Rica’s territorial principle.
- Adjustments from FAP to C-NTB:
  - Declared non-taxable incomes and non-deductible costs from tax return data (D101) were used to estimate differences.
  - Non-taxable components of interest, dividends, and others were estimated from declared non-taxable incomes by large corporations.
  - Deemed profit of corporations under the simplified regime was subtracted to exclude small taxpayers from the analysis.
- Adjustments from C-NTB to C-TB and TB:
  - Aggregate current-year losses were added back to estimate potential C-TB; tax return data were relied upon for aggregate losses due to lack of alternative reliable data.
  - Carried-over losses were deducted according to CIT legislation to derive potential TB.

*Source: IMF staff report content (excerpts).*

### 78. The potential tax base was calculated by deducting carried-over losses. Because data

### 78. The potential tax base was calculated by deducting carried-over losses. Because data

### Potential tax base calculation and adjustments
- Potential tax base calculation deducts carried-over losses. Because data on deductions for carried-over losses are only available for large corporations, it was assumed that the ratio of carried-over losses to taxable income for smaller corporations is the same as the large corporations.
- It was assumed that other deductions for allowances or reserves, which are not recognized as intermediate consumption, could be estimated from declared non-deductible costs of corporation.
- Declared non-taxable incomes (C34 of D101) include effects of returns and discounts, which have been already reflected in the estimation of GOS. So, the effects of returns and discounts were excluded by using the data for large corporations.
- The deemed profit was calculated by dividing the tax liability of corporations under the simplified regime by 10 percent rate applied to the small corporations.

### Potential CIT liability (estimation method)
- Potential CIT liability = potential CIT base × effective CIT rate.
- Because there are three different CIT rates depending on the amounts of sales, an effective average rate was calculated by taking the ratio of aggregate declared CIT liability before considering tax credits to aggregate declared taxable income for each year.
- Aggregate CIT credit was subtracted using data on declared CIT credits to obtain potential CIT liability.
- Note: It was assumed that individual tax returns use appropriate CIT rates based on their sales. Recent research pointed out that firms around thresholds for differentiated CIT rates are adjusting declared sales to stay below thresholds, which may cause the effective rate to underestimate the potential CIT liability.

### Key statistics from Table 2 (Steps for Estimating Potential CIT Base and Liability, % of GDP)
- Gross operating surplus (S11): 25.1 (2012), 24.0 (2013), 24.2 (2014), 24.3 (2015)
- [-] Gross operating surplus for Regímenes Especiales: 2.0 (2012), 1.9 (2013), 2.0 (2014), 2.1 (2015)
- Gross operating surplus for Régimen Definitivo: 23.1 (2012), 22.1 (2013), 22.2 (2014), 22.2 (2015)
- [+] Net receipts of property incomes: 0.3 (2012), 1.3 (2013), 1.2 (2014), 0.8 (2015)
- [-] Depreciations: 4.3 (2012), 4.2 (2013), 4.0 (2014), 4.0 (2015)
- [-] Other net payments of transfers and net deductions: 3.8 (2012), 3.5 (2013), 3.9 (2014), 4.7 (2015)
- Potential FAP: 15.3 (2012), 15.6 (2013), 15.5 (2014), 14.3 (2015)
- [+] Non-deductible costs: 1.5 (2012), 1.4 (2013), 1.4 (2014), 2.0 (2015)
- [-] Non-taxable incomes: 2.5 (2012), 1.9 (2013), 2.2 (2014), 2.1 (2015)
- [-] Profit under simplified regime: 0.0 (2012), 0.0 (2013), 0.0 (2014), 0.0 (2015)
- Potential C-NTB: 14.2 (2012), 15.1 (2013), 14.6 (2014), 14.2 (2015)
- [+] Current year loss: 4.0 (2012), 2.6 (2013), 3.2 (2014), 2.6 (2015)
- Potential C-TB: 18.2 (2012), 17.7 (2013), 17.9 (2014), 16.8 (2015)
- [-] Deduction for carried over loss: 0.1 (2012), 0.1 (2013), 0.0 (2014), 0.1 (2015)
- Potential TB: 18.1 (2012), 17.6 (2013), 17.8 (2014), 16.8 (2015)
- [x] Effective CIT rate to TB: 27.7% (2012), 27.6% (2013), 27.6% (2014), 27.7% (2015)
- Potential CIT liability before subtracting tax credits: 5.0 (2012), 4.9 (2013), 4.9 (2014), 4.7 (2015)
- [-] Tax credits: 0.2 (2012), 0.2 (2013), 0.2 (2014), 0.2 (2015)
- Potential CIT liability: 4.8 (2012), 4.6 (2013), 4.7 (2014), 4.5 (2015)

### Aggregate findings
- Potential CIT liability was estimated to be between 4.5 percent and 4.8 percent of GDP during the period.
- The estimated potential base (C-NTB) decreased from 18.2 percent of GDP in 2012 to 16.8 percent of GDP in 2015, in line with a decline of the ratio of GOS to GDP during the period.

### Actual measures (panel tax return dataset)
- A panel dataset of tax returns for anonymized CIT taxpayers was prepared for 2012–2016 by the MOF, containing comprehensive CIT return data following declaration forms for each specific year. Actual CIT base and liability were retrieved from the dataset, excluding financial corporations, governmental entities, and FTZ corporations for each year.
- Aggregate declared value of the current year CIT base: 6.4 percent of GDP (2012) to 6.8 percent of GDP (2015).
- Aggregate declared CIT liability for corporations: 1.7 percent of GDP (2012) to 1.9 percent of GDP (2015).
- Declared CIT base and liability do not perfectly match economic activities during a calendar year because most Costa Rican taxpayers’ tax period follows the financial year October–September rather than the calendar year.

### Sector CIT base gaps and caveats
- Annual GOS data allow estimation of potential CIT base by sector, but some necessary adjustments (property incomes, transfers) are not provided by economic activity, requiring assumptions. Sector-level estimates should be used with great caution.
- In 2012, large gaps between estimated potential CIT base and declared CIT base existed in several sectors, notably manufacturing (C), construction (F), Agriculture, Forestry and Fishery (A), and business services (M, N).
- Estimated sector gaps may contain errors/biases due to imperfect sector classification consistency between national accounts and tax registration.

### Possible sources of errors for CIT gap estimation
- Issues for national accounts data: potential underestimation of economic activities (non-observed activities or missing income transfers) would lead to underestimated CIT gaps; past national accounts revisions will revise estimated CIT gaps.
- Estimation using tax return data: adjustments for non-taxable incomes, non-deductible costs, losses, and tax credits used declared values with assumption of no declaration bias; taxpayer incentives to under-declare may bias potential CIT base and liability downward.
- Limitation of data: only large corporations submit D101 with detailed items, so adjustments (non-taxable incomes, non-deductible costs, deductions for carried-over losses) used large-corporation data and lacked detailed content breakdowns, causing unquantifiable biases.
- Sector classification of tax return data: incomplete institutional sector classification (S11-S15) and multi-sector operations can bias sector gap estimates.
- Differences in period: potential measures are calendar-year based, while most CIT tax return data reflect October (t-1)–September (t).

### Analysis of CIT revenue performance
- Yearly changes in ratio of actual CIT revenue to GDP decomposed into: changes in CIT statutory rate (τCIT), ratio of GOS to GDP, and CIT-efficiency ratio.
- Recent movement of CIT liability for non-financial corporations (S11) explained by CIT-efficiency and GOS-GDP ratio. In 2013, declines in both reduced CIT liability relative to GDP. Since 2014, increase in CIT-efficiency ratio for S11 contributed to higher CIT liability relative to GDP.
- CIT-efficiency ratio for S11: 21.9 percent (2013) to 24.8 percent (2015).

### Decomposition of CIT-efficiency changes (factors)
- [1] CIT base gap (smaller gap → higher efficiency)
- [2] Property incomes and depreciation (smaller differences between GOS and FAP → higher efficiency)
- [3] Deductions for carried-over losses (smaller deductions → higher efficiency)
- [4] Current year losses (larger current losses → higher efficiency)
- [5] Differences between FAP and C-NTB (smaller differences → higher efficiency)
- [6] Tax credits (smaller tax credits → higher efficiency)
- [7] Effective rate (larger effective rates → higher efficiency)
- Recent increase in CIT-efficiency ratio mainly attributable to decrease in CIT base gap. Other positive contributions: smaller differences between GOS and FAP (smaller depreciation and net property income payments) and smaller differences between FAP and C-NTB (smaller non-taxable incomes). Negative contributions: decrease in current year losses and increase in tax credit. Effective CIT rate has been stable.

### Recommendations for improving CIT gap analysis
- Adopt the RA-GAP methodology using updated national accounts data and the recently published integrated economic table to estimate potential CIT base and liability; further RA-GAP adjustments will improve estimates.
- Limit scope to non-financial corporations (S11) to make analysis more focused and less affected by biases; estimating CIT gaps for financial corporations is technically difficult and conceptual differences for S13 and S15 are significant.
- Use detailed sector analyses to support compliance management: compare top-down RA-GAP estimates with internal taxpayer compliance knowledge, and complement with bottom-up estimates using results of random/operational audits for specific segments to strengthen links between gap analysis and operational compliance risk management.

### Issues and data needs
- To improve accuracy, perfectly identify institutional sectors (S11-S15) for individual taxpayers via further collaboration between MOF and BCCR.
- Obtain further data and analyses on conceptual differences between GOS and taxable income—especially detailed information on contents of non-taxable incomes and non-deductible costs for all corporations.
- Technical needs: analyze distribution of taxable income and current year losses, focusing on continuously loss-making corporations; better data on deductions for carried-over losses to analyze differences between current-year tax base and tax base.
- For understanding CIT revenue performance, further analyze relationship between CIT declarations and CIT cash collections, considering: sources of differences between cash collections and declared CIT liability (arrears/collection gaps); effects of fiscal year vs calendar year; timing differences of declarations and payments; effects of offsetting collected advance payments and withheld amounts to other tax liabilities.
- Seek consistency of classification for economic activities between national accounts and revenue administration to improve sector gap analysis.

*Source: Staff calculations and MOF panel dataset as presented in the original content.*

### Appendix I. Data Tables for Included Figures

### Appendix I. Data Tables for Included Figures

### GST potential, net collections, and gaps (Figures 1, 10, 14, 21)
- Potential and components (PV-R, PV-C) and net accrued GST, % of GDP:
  - 2012: PV-R 10.2, PV-C 6.4, Net accrued GST 4.6
  - 2013: PV-R 10.3, PV-C 6.2, Net accrued GST 4.5
  - 2014: PV-R 10.3, PV-C 6.3, Net accrued GST 4.4
  - 2015: PV-R 10.1, PV-C 6.2, Net accrued GST 4.3
  - 2016: PV-R 10.0, PV-C 6.2, Net accrued GST 4.3
- Net accrued collections of GST and total GST revenue, % of GDP (Figure 10):
  - 2012: Net Accrued Collections of GST 4.6, Total GST Revenue 4.8
  - 2013: 4.5, 4.7
  - 2014: 4.4, 4.7
  - 2015: 4.3, 4.6
  - 2016: 4.3, 4.5
- Decomposition inputs for GST policy gap (Figure 21):
  - 2012: PV-R 10.2, PV-R2 9.4, PV-C 6.4
  - 2013: 10.3, 9.6, 6.2
  - 2014: 10.3, 9.6, 6.3
  - 2015: 10.1, 9.6, 6.2
  - 2016: 10.0, 9.6, 6.2

### GST compliance and policy gaps (Figures 2, 4, 15, 20, 23, 24)
- Compliance gaps for GST in Costa Rica (Figure 2 / 15):
  - Compliance gap (% of PV-C; left axis): 2012 29.1, 2013 27.9, 2014 31.3, 2015 31.1, 2016 31.1
  - Compliance gap (% of GDP; right axis): 2012 1.9, 2013 1.7, 2014 2.0, 2015 1.9, 2016 1.9
- Policy gap and expenditure gap (Figure 4 / 20):
  - 2012: Policy gap (% of PV-R; left axis) 37.0, Policy gap (% of GDP; right axis) 3.8, Expenditure gap (% of GDP; right axis) 2.9
  - 2013: 39.9, 4.1, 3.3
  - 2014: 38.4, 3.9, 3.2
  - 2015: 38.4, 3.9, 3.2
  - 2016: 38.2, 3.8, 3.3
- Changes in VAT/GDP from 2012 (Figure 23), % point change from 2012:
  - 2013: C-efficiency -0.11, FC/GDP 0.04, Total change in VAT/GDP -0.07
  - 2014: -0.18, 0.03, -0.15
  - 2015: -0.20, -0.04, -0.24
  - 2016: -0.17, -0.09, -0.26
- Changes in C-efficiency ratio from 2012 (Figure 24), % point change from 2012:
  - 2013: Change in compliance gap 0.81, Change in expenditure gap -2.65, Change in non-taxable gap 0.41, Change in cash/accrual difference 0.32, Total change in C-efficiency -1.12
  - 2014: -1.42, -1.72, 0.66, 0.67, -1.81
  - 2015: -1.33, -2.13, 1.04, 0.43, -2.00
  - 2016: -1.29, -2.55, 1.63, 0.56, -1.65

### GST by sector: potential, actual, compliance gaps, and PV-R2 (Figures 3, 16, 17, 19, 22)
- GST compliance gaps by sectors, % of GDP (Figure 3):
  - A: 2012 0.03%, 2013 0.03%, 2014 0.05%, 2015 0.05%, 2016 0.04%
  - B: 0.07%, 0.06%, 0.06%, 0.06%, 0.06%
  - C: 0.78%, 0.76%, 0.82%, 0.79%, 0.78%
  - D, E, J: 0.00%, -0.05%, 0.05%, 0.07%, 0.08%
  - F: 0.00% across 2012–2016
  - G: 0.60%, 0.57%, 0.56%, 0.48%, 0.44%
  - H: 0.01%, 0.01%, 0.00%, 0.01%, 0.01%
  - I: 0.44%, 0.44%, 0.44%, 0.43%, 0.41%
  - K: 0.00%, 0.01%, 0.01%, 0.01%, 0.01%
  - L: 0.00%, -0.01%, -0.01%, -0.01%, -0.01%
  - M, N: 0.04%, 0.03%, 0.04%, 0.04%, 0.04%
  - O: 0.00%, 0.00%, 0.00%, 0.01%, 0.01%
  - P, Q: 0.04%, 0.05%, 0.05%, 0.05%, 0.05%
  - R, S, T: 0.07%, 0.07%, 0.07%, 0.08%, 0.08%
- Potential GST revenues by sectors, % of GDP (PV-C) (Figure 16):
  - A: 0.04%, 0.03%, 0.05%, 0.05%, 0.04% (2012–2016)
  - B: 0.07%, 0.07%, 0.07%, 0.07%, 0.07%
  - C: 1.77%, 1.68%, 1.70%, 1.61%, 1.57%
  - D, E: 0.16%, 0.17%, 0.17%, 0.15%, 0.13%
  - F: 0.04%, 0.04%, 0.05%, 0.05%, 0.05%
  - G: 2.77%, 2.70%, 2.68%, 2.68%, 2.68%
  - H: 0.08%, 0.08%, 0.09%, 0.09%, 0.08%
  - I: 0.72%, 0.72%, 0.73%, 0.74%, 0.73%
  - J: 0.47%, 0.45%, 0.49%, 0.50%, 0.52%
  - K: 0.13%, 0.14%, 0.14%, 0.14%, 0.16%
  - L: 0.03%, 0.02%, 0.01%, 0.01%, 0.01%
  - M, N: 0.09%, 0.08%, 0.09%, 0.09%, 0.09%
  - O: 0.01%, 0.01%, 0.01%, 0.01%, 0.02%
  - P, Q: 0.05%, 0.06%, 0.05%, 0.06%, 0.06%
  - R, S, T: 0.09%, 0.09%, 0.09%, 0.10%, 0.10%
- Actual GST revenues by sectors, % of GDP (Figure 17):
  - A: 2012 0.01%, 2013 0.00%, 2014 0.00%, 2015 0.00%, 2016 0.00%
  - B: 0.00%, 0.01%, 0.01%, 0.01%, 0.01%
  - C: 0.99%, 0.93%, 0.88%, 0.82%, 0.79%
  - D, E: 0.52%, 0.53%, 0.46%, 0.40%, 0.38%
  - F: 0.04%, 0.04%, 0.04%, 0.05%, 0.05%
  - G: 2.17%, 2.14%, 2.12%, 2.20%, 2.24%
  - H: 0.07%, 0.07%, 0.09%, 0.07%, 0.08%
  - I: 0.28%, 0.28%, 0.29%, 0.30%, 0.32%
  - J: 0.11%, 0.14%, 0.15%, 0.17%, 0.19%
  - K: 0.13%, 0.13%, 0.13%, 0.13%, 0.14%
  - L: 0.03%, 0.03%, 0.02%, 0.02%, 0.02%
  - M, N: 0.05% across 2012–2016
  - O: 0.01% across 2012–2016
  - P, Q: 0.01% across 2012–2016
  - R, S, T: 0.02% across 2012–2016
- GST compliance gaps relative to domestic potential revenues by sectors, % of PV-C (Figure 19):
  - C: 2012 60.7%, 2013 60.8%, 2014 65.7%, 2015 63.9%, 2016 64.9%
  - G: 49.7%, 48.0%, 50.0%, 43.5%, 41.9%
  - I: 61.5%, 61.3%, 60.2%, 58.8%, 56.4%
- Potential GST revenues PV-R2 by sectors, % of GDP (Figure 22):
  - A: 0.19%, 0.15%, 0.11%, 0.17%, 0.17% (2012–2016)
  - B: 0.04%, 0.05%, 0.04%, 0.04%, 0.04%
  - C: 1.68%, 1.63%, 1.57%, 1.34%, 1.29%
  - D, E: 0.27%, 0.41%, 0.36%, 0.32%, 0.31%
  - F: 0.59%, 0.52%, 0.56%, 0.57%, 0.51%
  - G: 2.99%, 2.97%, 2.92%, 2.99%, 3.01%
  - H: 0.59%, 0.60%, 0.65%, 0.56%, 0.53%
  - I: 0.34%, 0.38%, 0.38%, 0.40%, 0.41%
  - J: 0.31%, 0.36%, 0.41%, 0.38%, 0.40%
  - K: 0.33%, 0.29%, 0.28%, 0.31%, 0.35%
  - L: 0.13%, 0.17%, 0.23%, 0.23%, 0.23%
  - M, N: 1.28%, 1.32%, 1.36%, 1.42%, 1.50%
  - O: 0.05%, 0.06%, 0.05%, 0.05%, 0.06%
  - P, Q: 0.47%, 0.53%, 0.57%, 0.60%, 0.60%
  - R, S, T: 0.18%, 0.17%, 0.17%, 0.18%, 0.19%

### Aggregate GST dynamics and efficiency (Figures 7, 8, 9)
- GST revenues to GDP ratio, % of GDP (Figure 7) — Import GST, Domestic GST, Total GST Revenue:
  - 2000: 2.8, 2.0, 4.8
  - 2001: 2.6, 2.5, 5.1
  - 2002: 2.6, 2.5, 5.0
  - 2003: 2.6, 2.3, 4.8
  - 2004: 2.4, 2.5, 4.9
  - 2005: 2.6, 2.5, 5.1
  - 2006: 2.8, 2.7, 5.4
  - 2007: 3.0, 2.8, 5.8
  - 2008: 3.1, 2.7, 5.8
  - 2009: 2.2, 2.6, 4.7
  - 2010: 2.2, 2.5, 4.7
  - 2011: 2.4, 2.5, 4.8
  - 2012: 2.3, 2.5, 4.8
  - 2013: 2.2, 2.5, 4.7
  - 2014: 2.3, 2.4, 4.7
  - 2015: 2.2, 2.4, 4.6
  - 2016: 2.2, 2.4, 4.5
- C-Efficiency Ratio in Costa Rica (Figure 8), C-Efficiency Ratio (%):
  - 2000 49.5, 2001 52.5, 2002 50.0, 2003 47.6, 2004 49.0, 2005 50.1, 2006 54.5, 2007 58.4, 2008 57.2, 2009 47.2, 2010 46.6, 2011 46.9, 2012 47.1, 2013 45.9, 2014 45.3, 2015 45.1, 2016 45.4
- C-Efficiency ratio in Latin American and Caribbean Countries (Figure 9), C-Efficiency Ratio (%):
  - Paraguay 88.0, Venezuela 86.6, Ecuador 77.5, Belize 71.5, Panama 68.1, Dominica 67.7, Barbados 67.5, Chile 63.5, Peru 58.2, Brazil 57.4, El Salvador 55.3, Honduras 51.8, Grenada 51.6, Uruguay 51.5, Nicaragua 49.5, Jamaica 48.6, Guatemala 46.4, Argentina 46.3, Costa Rica 45.8, Colombia 43.6, St. Lucia 42.0, St. Kitts and Nevis 38.8, Trinidad and Tobago 36.3, Guyana 34.4, Dominican Republic 32.1, Antigua and Barbuda 30.9, Mexico 30.4

### Corporate Income Tax (CIT): gaps, bases, revenues, and productivity (Figures 5, 6, 11, 12, 13, 27, 30–32)
- CIT gaps in Costa Rica (Figure 5 / 28):
  - CIT gap (% of potential liability: left axis): 2012 65.2, 2013 66.0, 2014 64.7, 2015 59.6
  - CIT gap (% of GDP: right axis): 2012 3.1, 2013 3.1, 2014 3.0, 2015 2.7
- Potential and declared CIT base, % of GDP (Figure 6 / 29):
  - 2012: GOS (S11) 25.1, Potential CIT base 18.2, Declared CIT base 6.4
  - 2013: 24.0, 17.7, 6.0
  - 2014: 24.2, 17.9, 6.3
  - 2015: 24.3, 16.8, 6.8
- CIT revenues to GDP ratio, % of GDP (Figure 11):
  - 2006 2.4, 2007 2.5, 2008 3.0, 2009 2.5, 2010 2.3, 2011 2.3, 2012 2.0, 2013 2.2, 2014 2.1, 2015 2.3, 2016 2.4
- CIT productivity in Latin American and Caribbean Countries (Figure 12), CIT Productivity (%):
  - Paraguay 0.244, Bolivia 0.216, Colombia 0.205, Chile 0.203, Nicaragua 0.156, Suriname 0.153, Uruguay 0.153, Guyana 0.145, Peru 0.122, Honduras 0.119, Brazil 0.117, Panama 0.112, Dominica 0.100, Guatemala 0.097, Barbados 0.094, Jamaica 0.094, Argentina 0.091, Mexico 0.085, El Salvador 0.080, Costa Rica 0.075, Dominican Republic 0.074, St. Lucia 0.073, St. Kitts and Nevis 0.059, Antigua and Barbuda 0.050, Venezuela 0.018
- CIT liability and CIT (MOF), % of GDP (Figure 13):
  - 2012: CIT Liability (D101) 2.0, CIT (MOF) 2.0
  - 2013: CIT Liability 1.8, CIT (MOF) 2.2
  - 2014: 1.9, 2.1
  - 2015: 2.1, 2.3
  - 2016: 2.3, 2.4
- CIT base gaps (Figure 27):
  - 2012 64.9, 2013 65.8, 2014 64.6, 2015 59.4
- CIT base gaps by sectors in 2012, % of GDP (Figure 30):
  - A: Potential CIT base 1.82%, Declared CIT base 0.22%
  - B: 0.16%, 0.01%
  - C: 4.35%, 1.30%
  - D, E: 0.56%, 0.13%
  - F: 2.17%, 0.29%
  - G: 2.81%, 2.33%
  - H: 0.79%, 0.25%
  - I: 0.75%, 0.13%
  - J: 1.03%, 0.22%
  - L: 0.71%, 0.59%
  - M, N: 2.04%, 0.46%
  - O: 0.00%, 0.00%
  - P, Q: 0.82%, 0.21%
  - R, S, T: 0.39%, 0.03
- Changes in CIT liability of S11 to GDP ratio from 2012 (Figure 31), % point change from 2012:
  - 2013: CIT efficiency -0.03, GOS/GDP -0.07, Total change in CIT/GDP -0.10
  - 2014: 0.03, -0.06, -0.03
  - 2015: 0.19, -0.06, 0.13
- Changes in CIT-efficiency ratio of S11 from 2012 (Figure 32), % point change from 2012:
  - 2013: Effective rate -0.07, Depreciation, property income 1.05, Difference between FAP and TB 1.06, Current year loss -1.83, Carried over loss 0.15, Tax credit -0.15, CIT base gap -0.59, CIT efficiency (S11) -0.39
  - 2014: -0.07, 1.21, 0.19, -1.03, 0.22, -0.24, 0.17, 0.46
  - 2015: 0.08, 0.78, 0.04, -1.96, 0.10, 0.00, 3.48, 2.51

### Tax expenditures and non-compliance reports (Appendix III)
- Tax expenditure report (MOF, covers 2010–2016; latest published August 2017):
  - Average tax expenditure for 2010–2016 is estimated to be 5.09 percent of GDP in total.
- Table 3. Tax expenditures in Costa Rica, % of GDP (2010–2016):
  - GST: 2010 2.94, 2011 2.97, 2012 3.04, 2013 3.13, 2014 2.90, 2015 2.83, 2016 2.89
  - CIT: 0.80, 0.70, 0.77, 0.77, 0.80, 0.75, 1.15
  - Other incomes: 0.96, 1.00, 0.99, 1.10, 1.07, 1.04, 1.05
  - Others: 0.32, 0.34, 0.30, 0.28, 0.26, 0.26, 0.25
  - Total: 5.02, 5.01, 5.10, 5.28, 5.03, 4.88, 5.34
- Non-compliance report (MOF; covers 2010–2013; first published 2014, more recent December 2015):
  - Table 4. Non-compliance Ratio in Costa Rica, % of GDP (2010–2013):
    - GST: 2010 2.36, 2011 2.30, 2012 2.31, 2013 2.36
    - CIT: 4.33, 4.18, 4.06, 4.23
    - PIT: 1.52, 1.50, 1.44, 1.63
- Method notes:
  - GST gap estimation: uses supply and use tables and household expenditure survey data; potential tax base considers taxable final consumption and intermediate consumption not entitled to claim input tax credit; cash collection is used as actual collection for compliance gap.
  - CIT gap estimation: starts with GDP to net operating surplus, adjusts for carried-over losses, non-taxable incomes, non-deductible costs, exempt regimes; declared CIT liability used as actual collection.
  - PIT gap estimation: uses household expenditure survey, corrects for underreporting per INEC, adds pension and retirement incomes, adjusts for non-taxable income and allowances; cash collection used as actual collection.

### RA-GAP model application and data sources (Appendix II)
- RA-GAP model purpose:
  - Estimates taxable GST base by sector considering taxable imports and domestic output, less input tax credits for intermediate consumption and capital formation.
- Key model inputs and assumptions:
  - Supply and use tables (SUT) and import matrices (BCCR) for 2012–2015 used to retrieve imports, outputs, and intermediate consumption by sector and commodity.
  - Aggregate purchases of capital goods allocated to sectors using BCCR 2012 allocation.
  - Aggregate exports and changes in inventories allocated using ratios of production and imports by sectors.
  - Potential GST revenues estimated for 2012–2015 and extrapolated to 2016 using growth of value-added, imports, exports, and aggregate capital formation.
  - GST rate assumptions:
    - For PV-C: standard rate of 13 percent applied to taxable goods and services, except woods and electricity for residence with reduced rates of 10 and 5 percent respectively; effective rate for trade margin computed as weighted average.
    - For PV-R2: standard rate of 13 percent applied to all taxable goods and services.
  - Exemptions and zero-rating:
    - PV-C: exemptions and zero-rating matched to SUT commodity headings per GST Law and Regulation; ratios set from customs data and other information when SUT headings include mixed treatments.
    - PV-R2: only financial services (NP146, NP147, NP148), rent for residential property (NP153), non-market output and output for own final use (AE086UF, AE087UF, AE088UF, AE109UF, AE114UF, AE136, AE086NM, AE114NM, AE124, AE125, AE126, AE127NM, AE128NM, AE130NM), and fuels (NP073, NP074, NP075) set exempt.
  - Taxable ratios and input tax credit restrictions:
    - PV-C: all activities fully taxable except those in special free trade zone regime; creditable ratios for purchases set following Article 14 of GST Law.
    - PV-R2: all sectors fully taxable; purchases of taxable goods/services fully creditable.
  - GST exemptions for specific purchasers (PV-C): aggregated values subtracted based on MOF tax expenditure report items ‘Exenciones Compras Locales Concretas’ and ‘Exenciones Compras Locales Genéricas’.
- Data used in the RA-GAP model:
  - Supply and use tables, 2012-2015 (BCCR; downloaded in August 2017)
  - Import matrices, 2012-2015 (BCCR; provided in August 2017)
  - Integrated economic accounts, 2012-2015 (BCCR; downloaded in August 2017)
  - National accounts of Costa Rica 2012-2016, base year 2012 (BCCR; downloaded in August 2017)
  - Balance of payments data, 2010-2016 (BCCR; downloaded in June 2017)
  - Imports and exports data, 2012-2016 (MOF; provided in August 2017)
  - Direct purchases in the national territory by non-residents 2012-2015 (BCCR; provided in October 2017)
  - Actual revenue and declaration data:
    - Total Revenue of Central Government, 1990–2016 (source listed), downloaded in September 2017
    - GST declaration data (D104) 2012-2016 (MOF; provided in August 2017)
    - CIT declaration data (D101) 2012-2016 (MOF; provided in August 2017)
    - Total GST and CIT revenues from the simplified regime 2012-2016 (MOF; provided in August 2017)
    - Import GST data 2012-2016 (MOF; provided in August 2017)

*Source: Appendix I–III tables and Appendix II model description in the provided IMF document.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2018/cr18124-costaricata.pdf_