House Finance Committee Chair Rafael “Tatito” Hernández proposed Tuesday the full elimination of the value-added tax slated to go into effect on June 1, while unveiling a package of measures that would essentially “re-reform” Puerto Rico’s tax structure to provide balance.
During a presentation in San Juan, Hernández — who belongs to the governing Popular Democratic Party — asked Gov. Alejandro García-Padilla for “space to calmly analyze a balanced tax system, without the VAT.”
“I’m not only saying that we need to put it off, we’re saying that it has to be taken out of the way. Unfortunately, the way in which it is structured, if parallel balances aren’t provided through tax relief, there will be no way to implement it,” he said.
In his proposal, Hernández will be pushing for the establishment of a 15 percent consumption tax, an increase in taxes to foreign corporations by 1.5 percent to 5.5 percent, setting a 1.5 percent “tollgate tax,” and putting a 10 percent general excise tax in place at the ports. The proposals would also eliminate income taxes for about 80 percent of taxpayers.
Hearings for the proposals will begin Mar. 29, he added.
“We’re asking the Governor to let us analyze different alternatives to be able to balance the system with other collections mechanisms,” he said, noting that the bill he will present will not necessarily eliminate the VAT, but will take off the “label” which generated the controversy that lead to a haphazard tax reform last year.
All of the elements the lawmaker is proposing would go into effect on Jan. 1, 2017, when a newly elected administration will take over. If approved, the package would include tax relief he said are “indispensable to establish a balance in the tax system and jumpstart the economy.”
The proposed tax relief package would cost the government some $1.2 billion, which would require identifying ways to collect enough revenue to guarantee the benefits as well as the effect of a consumption tax.
The retooled tax reform would exempt individuals who make up to $40,000 a year from filing tax returns, as well as married couples who make up to $80,000. Any amount in excess of the limits would be subject to income tax.