*** Update on Puerto Rico Tax Reform Measures, April 30, 2015 **
The latest tax reform measure in Puerto Rico, known as the CoBYS (Tax on Goods and Services) failed to pass the House of Representatives—the first step needed to enact the law. CoBYS replaced the previously proposed VAT measure (known as IVA in PR) and would have increased the general rate on goods and services to 13%, instituted a 10% intermediate tax for certain types of goods and services such as food, medical and educational services, and maintained the 1% municipal tax. The President of the House, a major proponent of the Tax Reform, stated this morning to the press that “the process was finished. The analysis and the discussion of this measure have concluded. There will be no reconsideration of this project.” The Governor of Puerto Rico will address the Commonwealth today in his ‘Situation of the State Message’ to put forth the steps necessary to permit the continuation of government services, and to address employment and the future economic health of the government.
*** Update on Puerto Rico Tax Reform Measures, March 6, 2015 **
At least from a tax reform perspective, the last few weeks have been tumultuous on the island of Puerto Rico. It seems like mere minutes passed between the Governor officially introducing the proposed VAT legislation to the Congress and the start of several major protest movements. First up, health related professionals and institutions took to the streets to demand that health care services be excluded from VAT. The Governor, fairly quickly, ceded to their demands. Next up, teachers, students and owners of private educational institutions clamored for an exemption for private education. Once again, the Governor agreed. Clearly buoyed by their predecessors unmitigated success, lawyers, religious groups, entrepreneurs, politicians, unions and the general public have joined in massive demonstrations at the Capitol demanding that the proposal be completely withdrawn.
Within the halls of the Legislative Assembly, support for the project has begun to erode. Several senators and representatives, despite the fact that they share the same political affiliation as the Governor, have withdrawn their support for the bill. Further, the President of the Senate informed the press that, as it stands today, the proposal no longer has the necessary votes to ensure passage. This past Thursday (March 5) local newspapers published information indicating that the Governor was planning on withdrawing the proposal and replacing it with a less comprehensive measure that would increase the existing sales tax rate to 10%. However, the Governor immediately took to the podium and in a press conference to announce that he had no such intention.
Sovos is closely monitoring the situation and will report on additional developments as they happen.
*** Original post published on Oct 29, 2014 ***
Puerto Rico Actively Considering a VAT
On Monday, October 27, high ranking officials within the Puerto Rico Government revealed that they are in the final phases of preparing a new tax reform package that would include the introduction of a VAT. The new VAT would replace the existing sales/use tax system applied at the Commonwealth and municipal levels.
The stated rational for moving to a VAT is centered on the perception that the current indirect tax system in Puerto Rico had become too complex, resulting in tax collections below original estimates. Puerto Rico believes a VAT system monitors itself, unlike the current sales tax scheme (IVU) which relies on the consumer for oversight. According to early government estimates, a VAT would double current sales tax collections. Based on these estimates, the government is planning on including, as part of the reform, an increase in the personal income tax exemption for single and married citizens, effectively removing the requirement for 82% of Puerto Rico residents to file income tax returns. The reform package is also expected to include a reduction in the corporate tax rate and an elimination of the gross receipts tax. Puerto Rico also clarified that the existing governmental debt obligation, for which payments are insured through sales tax collections, would not be jeopardized by the proposed changes. Interestingly, the proposed standard VAT rate has yet to be disclosed.
It’s expected that the final proposal will be presented at the end of October 2014, with the objective of having the new tax reform approved between January and March of 2015, with the new VAT taking effect later that same year.
For the latest news on Puerto Rico sales, use and value-added changes, please visit our Puerto Rico Information Hub.
