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Bill aims to reduce sales & use tax by taxing online purchases

By on April 4, 2017

SAN JUAN – A bill that seeks to collect sales and use tax (IVU by its Spanish acronym) on Internet purchases from companies without a presence in Puerto Rico could generate about $50 million, and the president of the House Treasury and Budget Committee Chairman Antonio Soto said the new revenue would in turn be used to reduce the same 11.5% tax.

During the public hearing for House Bill 849, Soto said that apart from reducing the IVU, the bill seeks to prevent unfair competition from foreign companies.

“The Treasury Department’s estimate is it can exceed $50 million to $65 million annually. That is money that the government of Puerto Rico isn’t receiving. By approving legislation like this in the states, companies have preferred to seek agreements with the state to collect the sales tax and send it to the government,” Soto explained.

Rep. Antonio "Tony" Soto refused to say if he will substitute Héctor O'Neill in Guaynabo's mayorship because "there is no vacant," even though the governor requested O'Neill's immediate resignation. (Courtesy)

Rep. Antonio ‘Tony’ Soto Torres (Courtesy)

For his part, Miguel González Vizcarrondo, president of the Puerto Rico Shopping Centers Association, recommended the bill’s “urgent” approval with an amendment that will allow Treasury to create an entity whose only role would be monitoring the virtual market and enforce the law.

The second amendment he proposed is to establish some sort of oversight mechanism to minimize tax evasion.

“Businesses established on the island produce a significant indirect impact in several fronts, from the creation of local complementary businesses that supply these businesses, to performing an important role in the rehabilitation programs of urban sectors,” González Vizcarrondo said.

The president of the Shopping Centers Association, which groups 148 centers, added that the retail sector keeps a Puerto Rican business class that will disappear as unfair competition prevails, “such as that generated in the online market.”

“Our business class is the foundation of a middle class that contributes to the stability of Puerto Rican society. Commerce through the Internet does not generate any of those benefits for Puerto Rican society. The competitive advantage of online commerce lies in several aspects, among which it is worth not paying the IVU on the merchandise sold. That adds to not paying in Puerto Rico other taxes such as those on the property that all those who operate facilities in Puerto Rico do pay,” he said.

González Vizcarrondo reiterated that virtual stores such as Amazon, Ebay and companies producing computer products have a pattern of unfair competition and warned that it makes it very difficult for the local sector to keep jobs at the current level.

For his part, Chamber of Commerce President David A. Rodríguez Ortiz also supported the bill, saying it will create stability by leveling “the rules of the game so there isn’t unfair competition” for any company that seeks to do business in Puerto Rico.

Similarly, Frankie Cruz Tejeda, legal adviser to the Retail Trade Association, endorsed the bill by noting that local companies have to pay wages, income tax and municipal license fees as well as incur in expenses, fees and taxes that those abroad don’t.

“We believe this bill is a step forward in the right direction,” Cruz Tejeda said.

The chairman was confident that, as with the 38 states that approved similar measures, companies will opt for an agreement with Puerto Rico to collect and return the tax.

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