Strengthening the role of the personal income tax in Costa Rica

This chapter discusses the design of the personal income tax (PIT) in Costa Rica, including the tax rate schedule and the income threshold where taxpayers start paying tax, the progressivity of the PIT, the PIT withholding system, the schedular PIT design under which different types of labour income are taxed separately and the PIT evasion by liberal professions. The chapter also discusses the design of the social security contributions (SSCs), focusing on the level of the rates and the minimum contribution threshold, as well as their impact on the incentives to work in the formal economy. The chapter discusses the impact of the lack of integration between the PIT and SSC systems. Average and marginal labour income tax wedges show the combined impact of PITs and SSCs on work incentives.