Treasury Committee Chair Urges Governor to Scrap B-to-B Tax
House Treasury Committee Chairman Rafael “Tatito” Hernández urged Puerto Rico Gov. Alejandro García Padilla on Tuesday to postpone the imposition of the business-to-business (B-to-B) tax indefinitely and analyze a broad tax reform that would contain income tax cuts.
“There is no one more loyal to the governor than I,” Hernández said. “I am asking him to [allow] us to, in a calm fashion, perform tax adjustments, but without implementing the IVA [Spanish acronym for value-added tax].”
Treasury Secretary Juan Zaragoza postponed until June 1 the implementation of the B-to-B tax hike to 10.5%, but Hernández said it should be outright repealed. The representative noted that unless the administration adopts a holistic approach to tax reform that includes a cut in income taxes and anti-regression measures, “we will just have another tax… and if there is something we can all agree on is that no one wants more taxes.”
The lawmaker for the Popular Democratic Party said he plans to start hearings on several such proposals starting March 29. The first proposal calls for a consumption tax that would range from 5% on services—including the 1% municipal tax—to a 15% consumption tax, on products that would include the 1% city tax.
Another proposal calls for a 1.5% tollgate tax, while another calls for 1.5% tax hike on the 4% tax already imposed on foreign-controlled corporations; and yet another calls for a 10% excise tax at the ports.
However, Hernández said he is open to other suggestions that can help bring over $1.19 billion to the island’s coffers.
The Certified Public Accountants Association, meanwhile, is helping a special committee of private sector groups in drafting a tax reform proposal that “is going to represent the private sector view on the matter,” noted the group’s president Zulmarie Urrutia-Vélez.
While U.S. House Speaker Paul Ryan has said legislation to help Puerto Rico should be ready by the end of the month, Hernández said Puerto Rico will have to deal on its own with the fiscal crisis and the debt because there are no votes in Congress from Democrats or Republicans for legislation to assist Puerto Rico. “We are going to have to deal with this [situation] ourselves,” he said, adding that the proposals levied by the Democratic Party are “too political” and contain poison pills that make them difficult to garner support.
Hernández gave an overview as to how the government got in its current fiscal state beginning in 2012. “Our problem is that we were too optimistic,” he said. “The state did not recognize the magnitude of the problem.”
He provided evidence showing that compared to 2012, people are paying more in taxes. In that regard, Hernández noted that all sectors agree on the need to grant income tax exemptions to single people earning up to $40,000 and married people earning up to $80,000, which would result in the repeal of 80% of income tax forms. The legislator said there is consensus on the need to mitigate the impact of the consumption tax by investing in help for the poor and elderly.
He also supported the securitization mechanism for the restructuring of a large part of the island’s debt.When the proposed tax reform was initially introduced back in 2014, the government proposed a 16% value added tax and the repeal of most income taxes; however, the measure did not have the support of the lawmakers. At the time, Fortaleza officials also stressed the need to implement an IVA-based system to replace the current sales tax model, arguing that it would reduce tax evasion and increase revenues to the government. He also said that the way to reduce tax evasion is to “keep someone like Treasury Secretary Juan Zaragoza,” who of late has carried out several stings against delinquent business establishments.