Puerto Rico Is Getting Feedback on Tax Reform

Puerto Rico's government is getting feedback from the business community on a major tax reform proposal, with an eye toward introducing the legislation next month.

"We are currently working on drafting the bill of law," according to a Puerto Rico government official, who declined to be identified by name. "At the same time we are holding group work sessions with representative groups of the economy sector and opinion leaders to explain to them the concepts and general lines of the reform and to get their feedback. We are also examining the legal, technological and operational needs and changes to achieve the implementation of the different phases of the reform."

"We expect to introduce the bill by mid-February to begin the legislative process for its approval," the official said.

Puerto Rico officials have said they are considering replacing the island's sales and use tax with a value added tax. While sales taxes are charged only by retailers, value added taxes are charged all along the supply chain.

The officials have said that the 7% sales and use tax would be replaced by a 14% to 16% value added tax. The threshold for paying income taxes would rise to $35,000 for individuals from the current $20,000 level.

Since those who make less income use a greater portion of their income for consumption, a shift to higher consumption taxes and lower income taxes would normally increase the burden on the poor. To address this, Puerto Rico's tax taskforce is anticipating introducing a credit for low income households.

The government is working on the overhaul to its taxes in order to strengthen its economy, reduce the cost of tax collection, and reduce tax evasion.

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