Costa Rica Tax Revenue Falls as Fiscal Reform Pressure Mounts, June 10

Costa Rica’s tax revenue is falling, and economists are sounding the alarm. The National University’s Economic and Social Observatory warned that a comprehensive fiscal reform is “necessary and urgent.” Tax collections have slid since 2023, driven by weaker business activity, currency strength, wage freezes, and earlier tax cuts. The Finance Ministry expects 2026 revenue to drop roughly ₡228 billion (about $500 million USD) below 2025 levels, yet the new government refuses to raise the overall tax burden.

Why Tax Revenue Is Shrinking

Multiple factors are squeezing Costa Rica’s public finances at once. Companies operating under the standard tax regime are generating less taxable income, while the colón’s strength against the dollar reduces revenue from dollar-denominated sources. A public-sector wage freeze and earlier legislative decisions that cut taxes and weakened the Tax Administration’s enforcement powers have compounded the problem.

The Observatory identified specific revenue leaks. Businesses evade taxes, individuals pay less than the OECD average, and the Sinpe Móvil mobile-payment system is being used to dodge value-added tax. As vehicles electrify, fuel-tax revenue will erode further.

The Government’s Political Bind

President Laura Fernández took office on May 9 after pledging that Costa Ricans would not face new tax increases. That campaign promise now collides with fiscal reality. The Finance Ministry has explicitly ruled out a new reform that would raise the overall tax burden, stating it does not foresee one.

Instead, Hacienda plans to send Congress bills focused on collecting existing taxes more effectively, tightening spending, and fighting evasion. The government has not yet detailed how these measures will close the ₡228 billion gap.

What Economists Are Proposing

The Observatory laid out a menu of options rather than a single fix. Cutting business tax evasion ranks first, followed by collecting more from individuals, who currently contribute less than their OECD peers. Closing the Sinpe Móvil loophole could recover VAT revenue.

The economists also urged the government to scale back tax exemptions, review breaks for companies in special regimes like free-trade zones, and consider environmental levies. These steps would raise revenue without formally raising tax rates, potentially offering a political path forward.

What This Means for Investors

Fiscal stress in Costa Rica could weigh on the country’s credit rating and borrowing costs. If the government cannot close the revenue gap through enforcement alone, pressure for tax increases or spending cuts will mount. Foreign investors in Costa Rican assets should monitor whether the government’s enforcement-focused approach succeeds or whether political pressure eventually forces a broader fiscal overhaul.

Final Thoughts

Costa Rica faces a fiscal squeeze with no easy political exit. The government’s refusal to raise taxes leaves enforcement and exemption cuts as the only stated tools, making the ₡228 billion shortfall a test of whether administrative measures can work alone.

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