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MIDA warns national tax will hike prices, end businesses

Manuel Reyes, vice president of MIDA

Manuel Reyes, vice president of MIDA

Thousands of jobs, businesses and consumer pockets are being threatened by a new national tax included in the Tax Burden Redistribution and Adjustment Law, which the Marketing, Industry and Food Distribution Chamber warned Monday could have “devastating effects.”

The trade group known as MIDA for its initials in Spanish said Law 40, and a technical amendments bill (House Bill 1427) set for approval this week, fail to consider that although the new tax affects many sectors, not all will take as big a hit as the food industry.

The bill, they claim, is being “fast-tracked” without debate or analysis.

“Such lack of consideration for food chain components will have an incremental impact on prices — thus affecting the needy — could prompt job losses or worker benefit reductions, among other measures that may be needed to face the new taxes, including the closing of supermarkets and local businesses,” said Manuel Reyes, vice president of MIDA during a news conference Monday morning.

Law 40 establishes the so-called national tax through an alternative minimum charge, which in its application imposes an average effective tax rate to the supermarket industry of between 80 percent and 130 percent, Reyes said. This would be on top of other impositions, such as the B2B tax, water and electricity rate hikes, among others.

“To put this in perspective, the highest corporate effective rate in the world is 39 percent in Japan and in the case of individuals, it’s around 45 percent in Belgium. The vast majority of employers and the general public still do not understand this reality of Law 40,” Reyes said.

“And the fact that it is a tax based on sales volume implies that the business may be required to pay taxes, even if they don’t generate profits or, even worse, that the tax itself can push the business into having losses,” he said. “What’s even more dangerous is that by design, the new tax affects only those industries and businesses with narrow margins, such as the food industry, without affecting those industries and businesses with margins greater than 5 percent.”

“This tax is regressive, unfair, arbitrary and discriminatory,” he said.

Meanwhile, MIDA President Ferdysac Márquez said imposing such high taxes on the food supply chain will cause increases in food prices, further aggravating the regressivity of taxes and potentially affecting food access to low-income households.

He explained that families with fewer resources, as is the case with countries, devote a larger proportion of their income to food and therefore would proportionately pay more taxes.

Economist Gustavo Vélez

Economist Gustavo Vélez

“Under this scenario, the only way in which a business can stay afloat is by increasing their margins either through price increases, cost reductions, a combination of both or closing down completely. All of these alternatives are disastrous for our economy and for consumers. To the extent that food is not discretionary, consumers don’t have options to avoid increases,” said Márquez.

During the news conference, Economist Gustavo Vélez calculated that as a result of the national tax, it is possible that between 13 percent and 20 percent of businesses — or between 52 and 80 grocery stores — could close, representing a loss of between 3,000 and 5,000 direct jobs, spurring an inflation of about 3.5 percent.

The grim prediction would result in a reduction of between $9 million and $14.5 million in payroll taxes for the government.

During the news conference, MIDA representatives urged the House to hold off on approving Bill 1427, and substitute it with House Bill 1430, which has the support of nine lawmakers.

Author Details
Author Details
Business reporter with 29 years of experience writing for weekly and daily newspapers, as well as trade publications in Puerto Rico. My list of former employers includes Caribbean Business, The San Juan Star, and the Puerto Rico Daily Sun, among others. My areas of expertise include telecommunications, technology, retail, agriculture, tourism, banking and most other segments of Puerto Rico’s economy.

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