Este informe no está disponible en español.


Taxes, Government

Zayas Seijo: Elimination of marriage penalty to go into effect in 2004 tax year

Public hearings on replacing 6.6% general excise-tax system with a sales tax or value-added tax to continue this week and next


January 23, 2003
Copyright © 2003 CARIBBEAN BUSINESS. All Rights Reserved.

The law eliminating the marriage penalty--which was passed during the Rossello administration but postponed by the Calderon administration for the past two fiscal years--will finally go into effect in the 2004 tax year, House Treasury Committee Chairman & Rep. Francisco Zayas Seijo told CARIBBEAN BUSINESS.

"It’s the fastest and easiest way to bring tax relief to taxpayers, especially to the middle class," Zayas Seijo said. "A married couple earning $30,000 a year each will save more than $2,000 in taxes."

According to Zayas Seijo, the issue of tax reform is a top priority, not only for the Treasury Committee but also for House Speaker Carlos Vizcarrondo. Other tax relief measures to be contemplated by the committee this year include a $100 salary increase for public employees and a $40 increase to public employees’ Christmas bonus. All three measures have a $380 million price tag against the general budget, which Zayas Seijo insists the government should be able to cover without a deficit.

In 2002, Vizcarrondo authored and presented Bill H.R. 3005, which asks the House to conduct public hearings and issue a report on the feasibility of replacing Puerto Rico’s archaic 6.6% general excise tax system with either a sales tax or a value-added tax (VAT).

"The hearings were supposed to start in early December, but budget problems forced us to delay them until January," said Zayas Seijo. He added that there is consensus among several sectors that something must be done about the current tax system.

Since the Puerto Rico Society of Certified Public Accountants (CPAs) had planned to issue a report on tax reform and on the possible implementation of a sales tax system in July, Zayas Seijo said it now makes more sense to conduct a joint study with the CPAs. "The study will identify what is economically feasible for the island," he said. Zayas Seijo added that a comprehensive study on the subject by the Rossello administration in 1994 will be used as the basis for the new report by the House and the CPAs.

Zayas Seijo is aware that merchants prefer a sales tax to a VAT because the former is easier to implement. He contends, however, that although a VAT is more complicated, it provides for better accountability.

"The point-of-sale sales tax system works. It’s a more efficient, more effective, and fairer system than the one we have now," admitted Zayas Seijo. "It will make the underground economy, estimated at $20 billion, contribute to the system."

The Puerto Rico Chamber of Commerce and the Puerto Rico Manufacturers Association were the first to participate in the hearings Wednesday. The hearings will continue Friday with the United Retailers Association and the Food Marketing, Industry & Distribution Association (MIDA by its Spanish acronym), followed by the Wholesalers Chamber of Commerce and Commercial Centers Management on Jan. 29.

Zayas Seijo pointed out that both the Treasury Committee and the Society of CPAs have made it clear there can’t be true tax reform without a dramatic drop in individual income tax rates. "Anything else, such as additional deductions, would only be an assistance, not a real help for the middle class, as having everyone pay a sales tax at the point of sale would be," said Zayas Seijo. "With a significant part of the money collected with such a system, you could dramatically reduce the income tax on individuals. The two must go together as part of a tax reform."

The chairman acknowledged that replacing the current 6.6% general excise tax with either a sales tax or a VAT would take several years, but he would like to get the process started by enacting legislation before the 2004 elections. "That way it won’t become a political issue," said Zayas Seijo. "There is support from the executive branch [the governor and the Treasury Department], the Legislative branch, and both political parties to do something about it."

This Caribbean Business article appears courtesy of Casiano Communications.
For further information please contact

Self-Determination Legislation | Puerto Rico Herald Home
Newsstand | Puerto Rico | U.S. Government | Archives
Search | Mailing List | Contact Us | Feedback