González tax reform advances, sparks solar tax exemption debate
Puerto Rico Gov. Jenniffer González has sent the second phase of her tax reform package to the Puerto Rico Legislature, advancing a set of measures aimed at reducing the tax burden on working families while drawing opposition criticism over a proposal that would eliminate a sales tax exemption for solar energy equipment.
The governor submitted 19 bills at the start of the legislative session, framing the reform as a way to deliver near-term relief ahead of the April income tax filing season. Her administration said the proposal seeks to simplify the tax system, lower rates for middle-income earners and increase deductions for families, while offsetting revenue losses through government spending reductions.
Among the central provisions in the second phase is a proposal to double the dependent deduction from $2,500 to $5,000, lower income tax rates for the working middle class and raise the income threshold for the top 33% tax rate to earnings above $150,000.
The administration said fewer than 0.2% of taxpayers fall into that top bracket. The package also aims to eliminate what officials described as overly complex rules to ease compliance and reduce administrative costs.
The administration estimates the changes would result in measurable savings for taxpayers. A single service technician with one dependent earning $23,768 annually would see their tax bill fall from $565 to $166, while a married social worker with one dependent earning $55,370 would save $1,206 under the proposed structure, according to government examples.
“With this tax reform, the working class will have more money left over,” González said.
The governor also pointed to the first phase of the reform, which is already in effect through 10 enacted laws. Those measures include changes to simplify Treasury Department processes, expanded exemptions for nonprofit organizations and bona fide farmers, an exemption of prescription drugs from the sales and use tax, and higher deductions for education savings accounts, retirement contributions and capital gains on primary residences.
‘Sun tax’ revived
The broader reform package has drawn criticism from the Popular Democratic Party (PPD, in Spanish), which argues that one of the bills would effectively revive the so-called “sun tax” by repealing the sales and use tax exemption for solar panels and energy storage batteries.
PPD Secretary General Manuel Calderón-Cerame said the proposal would repeal Section 4030.17 of the Puerto Rico Internal Revenue Code, which currently exempts solar equipment from the sales tax.
“It is irresponsible and bad policy to eliminate the sales tax exemption for solar equipment such as panels and storage batteries at a time when Puerto Rico is facing an energy crisis,” Calderón-Cerame said.
He warned that applying the 11.5% sales tax to solar systems would raise costs for families and businesses investing in renewable energy and urged lawmakers to protect incentives that support clean energy adoption.
“We reiterate our desire that tax reform … not cost the people anything,” Calderón-Cerame said.
Accountants welcome rate changes, urge caution
The Puerto Rico Society of Certified Public Accountants offered a more measured response, welcoming several elements of the proposal while cautioning that its fiscal impact will require close scrutiny.
David A. Rodríguez-Ortiz, president of the organization, said the proposed reductions in income tax rates and expanded brackets would benefit the island’s productive sector. He noted that while the top marginal rate remains 33%, the income threshold for reaching that rate would increase significantly.
“Previously, an individual earning a salary of $61,500 paid 33%; now they must have an income of $150,000 to pay 33%,” he said.
He also pointed to proposed changes to standard deductions, which would be adjusted annually for inflation. Under the proposal, the Internal Revenue Service would issue yearly inflation adjustments, allowing deductions to increase automatically.
Rodríguez-Ortiz cautioned, however, that the proposed tax reductions carry fiscal “costs that must be carefully evaluated in terms of how the bill addresses them, in order to avoid further obstacles” when the package is reviewed by the Financial Oversight and Management Board.
The legislation will now move through the legislative process, where amendments and further debate are expected before a final vote.
