Wednesday, February 8, 2023

Realtors Demand Elimination of B2B tax on Real Estate Services

By on March 30, 2016

As the Puerto Rico House Treasury & Budget Committee held hearings Wednesday on several tax reform bills, the Puerto Rico Association of Realtors (PRAR) requested the elimination of the 4% Business to Business (B2B) tax on real estate services put in place since last year, and which is slated to increase to 10.5% as a Value-Added Tax (VAT) June 1.

Rep. Rafael Hernández questions Treasury Secretary Juan Zaragoza.

Rep. Rafael “Tatito” Hernández

Vanessa Rivera, president of PRAR—the leading professional association for realtors, real estate brokers and real estate firms on the island—pointed out during her testimony the negative impact the 4% B2B tax has had on the industry by hampering the acquisition of properties and movement of the island’s housing inventory.

According to Rivera, some of the negative effects the local real estate industry has suffered over the past few years include the significant reduction in value year-over-year, the decline in new housing and commercial construction, new projects that remain unsold, difficult access to financing, and a marked increase in delinquency and mortgage executions.

“The scenario gets gloomier with the migration of tens of thousands of Puerto Ricans moving to the mainland U.S. and other countries,” Rivera said. “This exodus complicates matters further, as most of the people who migrate are highly educated and capable individuals, in the most productive age bracket.”   

For the PRAR president, such a development proves disheartening, as those migrating make up the largest demographic group that rents or purchases real estate for the first time, for both new and existing homes.

“Given the current situation of the Puerto Rican economy, and the delicate condition of the real estate industry, this new tax is having very adverse consequences, and will continue to do so, especially on the sectors of new construction, pre-existing homes and rentals,” Rivera commented during the hearing.

The bills under consideration by the House Treasury & Budget Committee—2032, 2838, 2839 and 2840—are authored by Committee Chairman Rafael “Tatito” Hernández. These seek alternate tax mechanisms to the current law, which will change the Sales & Use Tax or IVU for a VAT on June 1 and increase the current 4% B2B to 10.5%.

In a recent National Association of Realtors survey, Rivera noted 79% of those surveyed opposed the increase of the IVU from 7$ to 11.5% in effect since last year. By the same token, 84% of those surveyed are against the new B2B tax on designated professional services.

“In general terms, we are not against the government taking the necessary measures to increase its revenues through new legislation or better tax collection measures. However, we are obliged in protecting the best interests of the real estate industry and of the Puerto Rican families that decide their biggest investment of their lives is the purchase of their home,” Rivera said. “We underscore the great repercussions this tax on real estate services is having on the industry, thus affecting the Puerto Rican consumer, so we request its complete elimination.”

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