Wednesday, February 4, 2015

Puerto Rico Government Tries to Sell Public on Value Added Tax


SAN JUAN – Gov. Alejandro Garcia Padilla’s administration has launched a campaign to persuade Puerto Ricans of the advantages of its proposed tax reform plan, which includes a value added tax and aims to rein in pervasive tax evasion.

Implementation of a VAT is the most important step toward boosting tax collection, Rafael Hernandez Montañez, chairman of the finance committee of the lower house, told Efe.

The campaign seeks to familiarize Puerto Ricans with a new tax that is the Garcia Padilla administration’s main effort on the fiscal front.

The governor set a Feb. 15 deadline to have a bill introduced in the Legislative Assembly.

If passed by lawmakers, the VAT would replace and be well above the current 7 percent sales tax.

Under the indirect VAT proposal, each party involved in the “value added” chain will pay its predecessor a portion of the tax based on the price paid, but it will receive from its successor the portion of taxes according to the price invoiced.

The government has not provided many details about its plan or about a report by consulting firm KPMG on the expected impact of the tax, which has been criticized by the main opposition New Progressive Party.

“This is one of the most important measures in Puerto Rico in 20 years,” Hernandez Montañez said, adding that the plan tries to stem tax evasion involving “at least half a million people who do business under the table.”

On an island with a population of 3.5 million, only 1 million people file tax returns because of the large number of Puerto Ricans operating within the informal economy who do not pay taxes, the lawmaker said.

Finance Secretary Juan Zaragoza, who on Monday did numerous interviews with the media as part of the outreach campaign, said the KPMG report was highly technical and officials wanted to wait until a bill was introduced in the legislature to release it.

The administration says adoption of the VAT will leave around 800,000 taxpayers exempt from income tax.


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