Using tax policy to address Costa Rica's domestic environmental challenges

This chapter discusses environmentally related taxes in Costa Rica, and some broader tax provisions that influence environmental outcomes. The chapter discusses how the environmental effectiveness of taxation can be improved while tax revenues can be increased. The chapter analyses the design of the fuel tax and discusses whether its rates could be better aligned with the external costs of fuel use. The sales and import tax exemptions for fuels translate into a de facto preferential treatment of fuels compared to other products. Costa Rica's vehicle taxes are discussed, and the chapter suggests how they could be modified to better align with environmental policy objectives. In addition, the chapter comments on the differential taxation of private and public electricity producers, the recent initiative for a tax on non-reusable plastic containers, and the cost-effectiveness of the country's Payments for Environmental Services Programme.