Tax reform proposes new 16% goods and services levy

Written by  //  February 5, 2015  //  Government  //  No comments

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Puerto Rico's existing consumption tax structure could be replaced by a broad-based single rate GST with regressivity relief accomplished through direct transfer payments. (Credit: © Mauricio Pascual)

Puerto Rico’s existing consumption tax structure could be replaced by a broad-based single rate GST with regressivity relief accomplished through direct transfer payments. (Credit: © Mauricio Pascual)

The tax overhaul currently being discussed at the highest levels of government, based on an analysis by KPMG Accounting Services, would shore up as much as $6 billion a year for the public coffers, based on the application of a new 16 percent goods and services tax, according to the report released Wednesday.

The new structure would represent the elimination of the current sales and use tax system, and would boost collections for the government, which is also considering revising income tax conditions for Puerto Rican residents and businesses as part of the reform.

Since its inception, the sales and use tax structure has opened the door for evasion, especially by Puerto Rico’s ever-present underground economy. In its assessment, KPMG noted that the government’s collection level through the sales and use tax is 56 percent.

“The existing consumption tax exempts numerous goods and services, the consequences of which are reduced revenue, complexity, increased administrative cost and tax avoidance opportunities. Indeed the current compliance rate is estimated to be 56 percent,” KPMG said.

Through a goods and services tax the government would maximize its receipts and cut back on avoidance, KPMG said.

The proposed tax would include all goods and services except exported goods and services, financial services, residential housing, electricity, water, fuel, and hotel services, KPMG said.

“The objectives of tax reform are to ensure adequate revenues to the Commonwealth and promote economic growth by broadening the tax base, assuring an equitable distribution of the tax burden and enhancing compliance,” KPMG said in the executive summary of its 21-chapter report.

Only 14 of those chapters were made public Wednesday, as per a court order that came down Tuesday in response to a civil lawsuit filed by the Puerto Rico Journalists Association and Sin Comillas Inc.

To access all of the chapters released Wednesday, click HERE.

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