The power of citizens to confront corruption in Costa Rica

This post originally appeared on our chapter’s blog, Costa Rica Integra.

Last year, two ordinary people from different backgrounds, Lía Sánchez Agüero, a pensioner who used to work as a nurse, and Jorge Vizcaíno Porras, a volunteer firefighter, decided to take a stand against tax evasion in big business.

Members of the citizen empowerment movement, Territorios Seguros, Lía and Jorge filed an access to information request with the Costa Rican Ministry of Finance to release the names of those companies that reported zero profits or losses in the last 10 years.

Under Costa Rican law, companies that report losses or zero profits are not required to pay taxes, presenting an opportunity for unscrupulous companies to manipulate their balance sheets to avoid paying tax. Earlier in 2018 media had reported that one in four large companies reported losses or zero profit, which meant big losses in tax revenue for the country.

By avoiding taxes, companies shift the tax burden onto ordinary citizens who rely on tax revenues to fund essential and often lifesaving public services. This culture of tax evasion ultimately encourages corruption while perpetuating an environment where companies face little to no monitoring and few legal ramifications.

Authorities originally denied Lía and Jorge’s request, arguing that the information remain confidential despite being in direct violation of access to information laws.

However, in November 2018, the Costa Rican Constitutional Court ruled in favour of the request, and simply called for names and legal identification numbers to be published. As the request wouldn’t reveal any sensitive information, or any specific accounting information or otherwise confidential tax information to be revealed, the court argued that there was no reason to keep it secret.

It was an historic moment for accountability and transparency in Costa Rica.

The court’s ruling came at a time when Costa Rica’s new government, which began work in May 2018, passed a series of tax hikes, including several unpopular increases to the cost of medicines, in order to clean up a serious crisis in public finances. The result was widespread popular discontent and one of the longest strikes in the history of the country.

In this context, Lía and Jorge, who like most Costa Rican citizens were fed up with footing the tax bill while large companies enjoyed significant tax breaks despite being classified by tax authorities as large taxpayers, decided it was time to take action.

On December 5, 2018, thanks to the Constitutional Court’s unanimous decision, the Ministry of Finance was compelled to make public a list of big businesses that did not report any taxes from 2010–2016. The list was published one day after the new tax law came into force.

The revelation produced a huge stir in public opinion and an immediate reaction from media, the President, business chambers and the companies involved.

The list revealed companies with billions in assets and sales that had not paid taxes for years. Citizens like Lía and Jorge were outraged that the tax burden on individuals was growing while at the same time companies that were making large profits were avoiding taxes.

Thanks to a simple access to information request and the exemplary action of ordinary citizens, Costa Rica is at a turning point. Citizens are now demanding more from their government and business leaders.

As a result of this new company information, citizens are advocating for investigations into administrative or criminal wrongdoings and new tools to enable the Tax Administration to better combat tax evasion and avoidance. Given the opportunity for corrupt actions, it is necessary to investigate thoroughly and close the legal gaps that exist.

This blog is part of a 25th anniversary series showcasing anti-corruption efforts from chapters around the Transparency International movement.