Puerto Rico Tax Reform Aims to Kickstart Economy
Businesses that electronically file taxes to provide an accurate picture of their numbers will receive an internal score, and if they are in good standing, will not be required to annually renew certain licenses, such as to sell liquor or tobacco, nor will they have to undergo tax audits.
Those are some of the benefits of the proposed tax reform the government touts as an economic development tool, because it would reduce individual and corporate taxes, strengthen investments and, hopefully, curb emigration at a time when Puerto Rico has lost 200,000 residents and 10,000 small businesses after Hurricane Maria destroyed the island in September.
“These licenses are a headache for businesses. If they are in good standing, they will be able to renew them every two or three years. And we are going to have a separate office, so they can deal with their needs in an expedited manner,” Treasury Secretary Raúl Maldonado said. “We will treat you [electronic filers] differently from a taxpayer whose numbers I have to check on paper.”
While Caribbean Business sources contend the Financial Oversight & Management Board is unhappy with the proposed tax legislation because it does not help reduce a $3 billion gap in Puerto Rico’s revised fiscal plan, Maldonado said the bill would promote sustainable development. “Promesa requires Congress to give us an economic development tool, and Congress has not acted. Therefore, this is our economic tool,” he said.
Where will the government get money to close the $3 billion budget gap in the fiscal plan? Aside from tax reform, Maldonado is betting on the combination of renewed economic development and tax compliance efforts to hike revenues.
He flatly denied assertions that the plan is to retool the calculation of real property taxes by the Municipal Revenue Collections Center (CRIM by its Spanish acronym), the entity in charge of municipal finances, to close the $3 billion gap in the five-year revised fiscal plan. He said the plan is to add new properties to the Property Registry and update taxes on properties that have undergone renovations or expansions that were never reported.
“The modernization of property-tax structures does not mean there will be a hike in taxes. We want to register properties that are not currently registered, and register constructions that were not reported. Then, we will do a reassessment,” he said.
Maldonado provided Caribbean Business an overview of the proposed tax reform. One of its features will provide tax incentives to businesses that hire recent college graduates. “The goal is to give these graduates work experience and curb emigration,” he said. Companies and businesses can receive tax deductions for reinvesting in salaries, new machinery and expansions in an effort to promote growth.