Two members of the Puerto Rico House of Representatives have proposed changes to the commonwealth's tax system in a bid to increase revenue for the central government and simplify filing.
The proposals by House President Jaime Perell- Borrás and chairman of the House Treasury and Budget Committee Rafael Hernández Montañez would reduce paperwork and eliminate a "patent tax" on corporate revenues over $1 million a year. The representatives and Gov. Alejandro García Padilla are members of the Popular Democratic Party. The party holds a majority in both the Puerto Rico House and Senate.
Garcia Padilla is working to stabilize the government's finances after the major rating agencies downgraded the commonwealth's general obligation debt to speculative grade. The public sector debt in the commonwealth totals about $73 billion.
Hernández Montañez is a member of a special taskforce working on reforming the tax system. The committee, led by Treasury Secretary Melba Acosta Febo, is considering the ideas that he and Perell- Borrás announced Wednesday, he told The Bond Buyer.
The representatives said that fewer Puerto Ricans should be required to file income tax forms.
While employers would continue to withhold portions of wages for commonwealth income taxes, at least 88% of income tax payers would not have to submit the forms.
Doing this would reduce the amount of money that the Department of the Treasury spends on form processing, Hernández Montañez said.
The commonwealth's tax system is complicated and thus burdensome to businesses, Hernández Montañez said. It should be simplified to benefit not only businesses and individuals but also the government itself, he said.
The "patent" tax on corporations that they are proposing to eliminate was introduced in fiscal 2014.
In a separate proposal, the representatives said the government should replace corporate property taxes with taxes on profits.
"From 1987 until now there have been four tax reforms produced," Perell- Borrás said. "The continuous changes in tax laws are provoking a lack of confidence of the tax payers in our contribution system that is impacting the economic development of the island. That is why it is important to maintain a consistency in the tax laws and last minute changes to cover short term needs should be avoided. We must change this short term vision and we must require that the government prepares a five year estimate to achieve a balance between revenues and expenditures."
Hernández Montañez said any tax changes should also be aimed at reducing the portion of the economy that is untaxed, known as the underground economy.
