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Vizcarrondo: House To Study Sales Tax

Hopes To Replace Burdensome, Time-Consuming Excise Tax System


June 6, 2002
Copyright © 2002 CARIBBEAN BUSINESS. All Rights Reserved.

House Speaker Carlos Vizcarrondo has presented a resolution asking the Treasury Commission of the House of Representatives to conduct a comprehensive study on the possibility of replacing the current 6.6% excise tax system in Puerto Rico with a general-consumption sales tax or a value-added tax.

House Resolution (H.R.) 3005, filed by Vizcarrondo March 7, orders the House’s Treasury Commission to conduct a study on the viability of implementing a new tax structure based on two types of taxes: an income tax to individuals and corporations and either a general-consumption sales tax or a value-added tax.

The objectives of the taxes, according to the resolution, are fairness, efficiency, ease of implementation, and a better democratization of the government’s fiscal apparatus.

"The goal is to keep the current income tax system to individuals and corporations but to reduce the tax brackets," Vizcarrondo told CARIBBEAN BUSINESS. "Additionally, a sales or value-added tax would generate millions more in revenue and reduce the underground economy."

This is not the first time an overhaul of the income and excise tax systems has been suggested. Economic analysis and simulations made during approval of the 1994 tax reform revealed a need for such a change, especially with regard to the sales tax system, Vizcarrondo indicated. The analysis determined the combination of the income tax system with a sales tax to be "an efficient one."

The idea of implementing a sales or value-added tax system in Puerto Rico was brought back into the spotlight when the Calderon Administration imposed increases to the excise taxes on alcoholic beverages, cigarettes, and sport utility vehicles as a means to raise the money it needs to balance the budget.

Additionally, a recent federal court order asking the local Treasury Department to refrain from requiring that air carriers collect the excise taxes on goods shipped to the island has caused an unexpected hole in the government’s budget of $100 million per year (CB May 16).

"I think the time is ripe to change the current excise tax system for a sales or value-added tax," said Vizcarrondo. "It’s going to take political will, but first we need to perform a more comprehensive study on the matter. That’s what my resolution is all about."

House Treasury Commission President Francisco Zayas Seijo and House Commerce & Industry Commission President Guillermo Valero together issued a final report on H.R. 289, filed February 19. The resolution ordered the two commissions to conduct a joint study on the issue of replacing the current excise tax system with a consumer sales tax.

Both commissions held public hearings at which several business organizations as well as public & private sector representatives presented testimony. Among them were Nestor Reyes Inc., the Puerto Rico Chamber of Commerce, the United Retailers Association, the Ports Authority, and the State Society of Certified Public Accountants.

Following are some of the conclusions drawn from the joint study:

  • Puerto Rico is the only U.S. jurisdiction that taxes goods at the port of entry.
  • Most countries worldwide have a sales or value-added tax system, where goods are taxed at the point of sale.
  • The current excise tax system is burdensome and time-consuming, increasing costs, adversely affecting trade, and making the island less competitive.
  • The excise tax system promotes an underground economy.
  • Only 5% of shipping containers are inspected, opening the door to large-scale tax evasion.
  • A sales or value-added tax system would broaden the tax base and reduce costs.
  • Although a sales tax system is complex to administer, most island businesses are ready to implement one.

H.R. 3005 is a follow-up to the commissions’ report on H.R. 289, noted Vizcarrondo, who is confident that most members of both legislative chambers and the governor will support his resolution for a study on the viability of a sales or value-added tax system in Puerto Rico. In fact, Vizcarrondo is confident that legislation to implement a sales tax system could be approved before the current four-year term is over.

"Senate President Tony Fas Alzamora and Gov. Sila Calderon have supported past House initiatives that have benefited Puerto Rico, and I don’t see why they wouldn’t support this one," said Vizcarrondo. "But it’s going to take political will, no question about that."

Vizcarrondo’s resolution is now awaiting approval by the House’s Internal Affairs Commission.

This Caribbean Business article appears courtesy of Casiano Communications.
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