EspañolThe Puerto Rican tax system faces a potentially radical transformation at the hands of Governor Alejandro García Padilla. The change calls for replacing the 7 percent Sales and Use Tax (SUT) with a new 16-percent Value Added Tax (VAT). The goal is to aid the island’s economic recovery.
The governor has argued that the implementation of a VAT will create a new tax system that will reduce tax evasion. “We have a system that penalizes work and productivity, while rewarding evasion,” he said last November.
The creation of a VAT has generated some strong opposition. Businesses and doctors offices have announced plans to close shop and cancel patients’ medical appointments in protest. Opposition activists have also announced plans to participate in a “No Consumption Day,” an “apolitical” boycott scheduled for March 3.
Some businesses have turned to social media to voice their dissent, announcing that they will remain closed and encouraging consumers to abstain from shopping as a form of protest.
Este martes 3 de marzo Guitars Boutique estará CERRADO. Vamos la marcha: NO AL IVA http://t.co/j0QwEUiB3d
— Guitars Boutique (@GuitarsBoutique) February 28, 2015
“Tuesday, March 3, Guitars Boutique will be closed. Let’s go to the march: No to the VAT.”
Merchants are urging those unable to take part in the march to participate in No Consumption Day to generate pressure on the government.
“Tomorrow. No Consumption.”
President of the Puerto Rican Medical Association Victor Ramos defended the decision to cancel doctors’ appointments and reschedule them for a later date. “We understand that it is the duty of every physician to express their outrage,” he said.
On Sunday, March 1, leaders from the New Progressive Party (PNP), the Puerto Rican Independence Party (PIP), and the Working People’s Party (PPT) appeared before a committee in the House of Representatives with proposals against the VAT. They say the VAT would be detrimental to workers.
At the same time, hundreds of people marched to the headquarters of the Executive, in Old San Juan, to express their disapproval of the proposed tax reform.
Ricardo “Ricky” Rossello, a protest organizer and prospective 2016 candidate for office, said there exist options to increase revenue without instituting a 16-percent VAT, such as allowing municipalities to collect their own Sales and Use Tax.
Secretary general of the PIP, Juan Dalmau, reported that the Ministry of Finance has been unable to secure adequate compliance for the SUT and income-tax payments. As an alternative to the tax reform, Dalmau has called on the government to curtail spending and reduce the cost of doing business in Puerto Rico as a way of encouraging economic development.
Pedro Pierluisi, Puerto Rico’s delegate to the US Congress, says the reform will not alleviate the public’s tax burden, and will only serve to increase government revenue.
PPT spokesman Rafael Bernabe noted that the consulting group KPMG has argued that regressive tax systems, like the SUT, make up 16.76 percent of the government’s revenues, which would increase to 43.57 percent should the reform be implemented.
Under the proposed VAT system, medical services and education would no longer be tax exempt.
Treasury Secretary John Zaragoza claims that imposing a VAT on primary education services would yield just under $200 million, and that an exemption would force to government to search elsewhere for funds. Zaragoza also proposed the government issue refunds to families who may be adversely affected by the tax.
The president of the Association of Private Education of Puerto Rico, Madeline Carrión Parrilla, remains steadfastly opposed to the idea that private education should be subject to a VAT of 16 percent, calling the proposal “punitive, unfair, and discriminatory.”
According to Parrilla, a VAT on private education “could limit low-income students’ access to these schools…. If the VAT generates a shift from private to public schools for students, the state would have to increase its budget by $8,339 for each student opting for public education,” she warned.
The Association of Private Colleges and Universities (PUMA) appeared before the Senate this week to express their dissatisfaction with the government’s proposal. The association instead proposed the Finance Department refund 9 percent of their 16-percent tax contribution, leaving schools and private universities to pay a 7-percent tax, without the need to issue a refund to student families.
The Puerto Rican Congress has to yet to vote on the VAT proposal, and legislators like Luis Raul Torres and Manuel Natal have not declared their stance on the reform. Congressman Charlie Hernandez said he receives text messages daily from other representatives who have doubts about the VAT, but expects them to continue to participate in the discussion.
Translated by Michael Pelzer. Edited by Guillermo Jimenez.