Puerto Rico introduced a 4% professional services and business to business tax to increase revenue amid the commonwealth’s liquidity crisis.
The tax took effect Thursday, after the governor approved amendments made by the legislature this week. It will expand Puerto Rico’s consumer taxes to cover a variety of professional services and goods sold between businesses. Puerto Rico’s 11.5% sales and use tax currently primarily covers consumer goods.
The tax was one of several measures included by the Working Group for the Fiscal and Economic Recovery of Puerto Rico in their Fiscal and Economic Growth Plan. In the plan this new tax is grouped with the expected transition of the sales and use tax to a value added tax in April. The plan projected that these two tax changes would lead to an additional $135 million in the current fiscal year, $222 million in fiscal 2017, $224 million in fiscal 2018, $227 million in fiscal 2019, and $230 million in fiscal 2020.
For comparison, Puerto Rico’s current fiscal year budget anticipates $9.8 billion in spending.
Puerto Rico officials said in congressional testimony in Washington that the government would run out of money around the end of the calendar year.
Puerto Rico legislators this week passed five amendments to the new tax, including exemptions for legal services and services from businesses generating less than $50,000 a year. The tax bill already exempted medical and certain other services.
A 4% professional services and business to business tax starting Oct. 1 was approved as part of the current fiscal year’s budget. At issue now is whether Gov. Alejandro García Padilla will sign the package of amendments.
The Puerto Rico Senate and House of Representatives passed the amendments on Tuesday.
Revenues from a business to business and professional tax were included in the adopted current budget, according to a source close to the governor. The tax revenues will go to the General Fund.
