Wednesday, December 8, 2021

Puerto Rico Senate passes Tax Reform with amendments

By on November 2, 2018

SAN JUAN – The Puerto Rico Senate passed in the early hours of Friday, with minority lawmakers voting against, the Tax Reform bill of the House of Representatives, but with more than 200 amendments, some of which will negatively affect the University of Puerto Rico (UPR).

If the lower chamber concurs with the Senate’s amendments to House Bill 1544, Gov. Ricardo Rosselló Nevares could have the legislation in his hands next week for enactment. The 200 amendments mostly eliminate, add and renumber articles.

The virtues of the bill, Senate President Thomas Rivera Schatz said, include cutting individuals’ income tax rate by 5 percent and the corporate rate to 37.5 percent from 39 percent.

The measure would eliminate the business-to-business tax to 77 percent of taxpayers whose sales volume is less than $200,000 annually. It establishes a credit for work of $300 to $2,000 a year that would benefit about 400,000 taxpayers. In addition, the 11.5 percent sales and use tax (IVU by its Spanish acronym) on prepared food is lowered to 7 percent.

The bill incentivizes hiring university students by establishing an employer deduction of 150 percent of the salary paid. It also promotes credit for work.

Rivera Schatz described the legislation as an indispensable “tool that will provide the men and women of the Puerto Rico Police with a path to a dignified retirement, as they have earned with their work.”

The overhaul would create a trust to which funds for the police force’s retirement would be allocated, but details and regulation will be voted on in a separate measure.

“The specific bill for the trust is going to be discussed with all the union groups and all of Puerto Rico’s police so there is no doubt, [so] there is clarity and so everything is in perfect order, and then we begin to provide the genuine support the members of the Police deserve so much,” Rivera Schatz reiterated.

The police pension trust would be created with revenue from the licensing and regulation of 45,000 gaming machines in convenience venues outside casinos.

Finance Committee Chairwoman Migdalia Padilla explained that slot machine revenue will be directed 45 percent to municipalities, 50 percent to fund the Police retirement trust and 5 percent to the Puerto Rico Tourism Co. That would result in the UPR receiving little to no revenue from the gaming machines as it deals with millions of dollars less in government subsidies.

During public hearings on the bill, the Puerto Rico Hotel and Tourism Association warned that if the government legalized the slot machines, it would not only affect the tourism industry, but also the UPR. In a statement, it said the measure was “a dishonest attempt to deceive legislators and the people,” and that it would lead to a fiscal shortfall of about $300 million a year, which “would make it impossible for the bill to be revenue neutral,” as required by the island’s fiscal oversight board.

The organization’s former president, Miguel Vega, said the UPR would stop receiving $27 million to $35 million in casino revenue. He also indicated that of the 80,000 tourism industry jobs, 2,000 to 3,000 casino jobs could be lost if slot machines are legalized across the island because people would no longer visit them.

“The government has the 2013 Spectrum Gaming Group study, which estimates that legalizing 30,000 slot machines would result in a loss of $149.1 million in a conservative scenario, and $194.6 million in a high-impact scenario, a reduction between 45.8% and 59.8%. The study estimates that the University of Puerto Rico would lose between $27.1 [million] and $35.4 million annually, while the general fund and the Tourism Office would lose between $32.5 [million] and $42.5 million,” he said.

Sen. Padilla said approval of the “new tax model” goes “far beyond looking at whether the [gaming] machine leaves money or not. We want to ensure that municipalities and the police receive these collections,” stressing that the video-lottery-machine prizes will no longer be exempt.

Several amendments to incentives for investor from abroad, such as Acts 20 and 22 were not adopted by the upper chamber’s bill.

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