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P.R. consumers are in for more sticker shock

By Elisabeth Roman of Caribbean Business

August 11, 2005
Copyright © 2005 CARIBBEAN BUSINESS. All Rights Reserved.

There is no denying Puerto Rico depends greatly on cars to move its residents and the economy. Thanks to the lack of adequate public transportation, residents on the island are forced to purchase at least one car per family to get to work, take their children to school, go shopping, and to simply get their errands done.

However, the island’s dependence on automobiles has become costly and keeps getting even more expensive. Not only do car owners have to deal with traffic jams, potholes and caved-in streets, skyrocketing gasoline prices, carjackings and, most recently, gunfire from one car to another on our roads and highways, now consumers will have to pay higher toll fees and contend with a hike in the cost of vehicle-registration fees or marbetes as they are widely known in Puerto Rico. So, together with the triple-digit hike in water rates, higher electricity and gasoline costs, and a long list of other increased charges, the tax costs of owning and operating a motor vehicle in Puerto Rico have gone up…again.

This is the third time in four years that the Commonwealth has turned to consumers, auto distributors, and dealers to increase its revenue. In 2002, the Calderón administration increased excise taxes on sport utility vehicles (SUVs) and luxury cars and, needless to say, the sale of SUVs has been declining ever since.

Local consumers already pay 30% to 40% more for new vehicles in Puerto Rico than consumers on the U.S. mainland, thanks to excise taxes, property taxes imposed on vehicles, and municipal taxes. Since very few consumers in Puerto Rico have the funds in their bank accounts to make their car purchases in cash, they have to be financed, which means buyers not only are paying interest on the cost of the car, but also are financing the thousands of dollars in taxes the Commonwealth imposes on new vehicles. The bottom line is local consumers are forced to pay much higher prices for their cars despite the fact that they earn one-third less per capita than residents on the mainland.

Now, to help the commonwealth government dig out of a fiscal crisis created over the past four years, car owners on the island will be hit with a progressive tax on marbetes, which is essentially a fee imposed on car owners for using the island’s public roads.

With the new tax, the cost for a marbete will jump from $40 a year to as much as $1,000, depending on the price of the vehicle. The more expensive a vehicle is, the higher the registration fee to be paid. Vehicles costing more than $40,000, including taxes, which are essentially cars with a manufacturer’s suggested retail price of just over $20,000, are considered luxury cars under the new bill and will have more expensive marbetes.

As a result, in fiscal 2006, consumers in Puerto Rico will pay more than $700 million to the commonwealth government in the form of excise taxes, property taxes, and marbetes.

Taxes imposed on Puerto Rico consumers’ car purchases are far from being fair. Under the current excise-tax rate, the Puerto Rico Treasury Department (Hacienda) requires repayment of any difference in the excise tax if the car is sold above the suggested retail price. However, if it is sold below the retail price, Hacienda doesn’t refund the excise tax paid based on the vehicle’s higher price when it arrived in Puerto Rico. This serves as a disincentive for dealers to reduce the price of their vehicles. Auto distributors and dealers believe a sales tax would be beneficial to the industry and consumers compared to the complicated excise-tax system we currently have.

A sales tax on cars would remove the burden and operational costs that dealers and distributors pay to process the excise tax, a cost that is passed on to consumers. The executive director of the Puerto Rico Automobile Distributors Association says imposing a sales tax in Puerto Rico would bring the prices of cars on the island more in line with those on the U.S. mainland. A sales tax also would make the transaction of purchasing a car more transparent, since consumers would know upfront the exact cost of the vehicle and the taxes paid.

This Caribbean Business article appears courtesy of Casiano Communications.
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