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Puerto Rico gov enacts ‘tax reform’ measure

By on December 10, 2018


SAN JUAN – Gov. Ricardo Rosselló enacted Monday the tax reform measure that would legalize slot machines outside casinos, simplify the tax code system and deliver up to $2 billion in tax relief for Puerto Ricans, his administration said.

“Today, we are making history. Despite the deficit we found when we started our term, we are making a new tax model a reality, which we achieved by making certain tax adjustments and establish a new scenario for investors,” Rosselló announced at La Fortaleza.

In November, the executive director of the island’s fiscal oversight board, Natalie Jaresko, sent a letter to the legislative leaders before the bill was passed, saying the panel had not seen enough evidence that the video-lottery machines’ provision in the bill would not affect the fiscal plan. However, Rosselló argued that the bill was certified as revenue-neutral by the board.

“We understand that the Governor has signed into law House Bill 1544, which addresses several tax initiatives. The Oversight Board recognizes the many revisions made by the Government and the Legislature to align the legislation with the Commonwealth Fiscal Plan. However, the Oversight Board has repeatedly expressed its concerns that the video-lottery provisions included in the legislation are not revenue neutral because the Government and Legislature have not put forth sufficient evidence that these changes will not cannibalize existing Commonwealth Fiscal Plan revenues. The Oversight Board looks forward to receiving the certification of the legislation as compliant or non-compliant with the Commonwealth Fiscal Plan as required by Section 204(a) of PROMESA [Puerto Rico Oversight, Management, and Economic Stability Act], which is due no later than December 19, 2018. Until such time as the certification is received, the Oversight Board will not make any further commentary regarding this topic,” Jaresko said in a statement after the governor made the announcement.

The measure did not include the elimination of the so-called Stored Inventory Tax, which is expected to be addressed in another measure in January.

The proposed tax reform will also impose a 29% tax on law firm and contractor fees for work performed outside of Puerto Rico in the island’s Title III bankruptcy under Promesa, which some lawyers have already said will result in higher fees.

The new law eliminates the business-to-business tax for businesses with a volume of less than $200,000, for a “savings of $79 million in five years,” La Fortaleza’s release reads. It also lowers the sales and use tax on prepared meals from 11.5% to 7%.

The legislation establishes an earned-income tax credit, “which will result in savings of $200 million annually,” the governor said, by providing credits ranging from $300 to $2,000, depending on the employee’s income and number of dependents.

The “New Tax Model” reduces the tax rate for corporations from 39% to 37.5%, and provides a5% credit to individual taxpayers.

“The New Tax Model will help provide the economic boost Puerto Rico needs,” Treasury Secretary Teresita Fuentes said, adding that “more than 77 percent of business owners will benefit from not having to pay” the b-to-b tax.

Puerto Rico Legislature passes tax reform despite fiscal board objections

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