Puerto Rico Treasury: Sales Tax Collection Rate Has Increased
SAN JUAN—The Treasury Department, using a new methodology that officials say is more accurate, has calculated that the overall collection rate of the sales and use tax (IVU by its Spanish acronym) increased to 63.7% in 2015.
The tax collection rate in the merchandise sector was 74.3%, while the in the service sector only registered a 43.5% rate. Taking into account that the Treasury Department’s goal is to achieve a level of capture of 80%, officials estimated that the government lost around $300 million.
Economist Juan Lara, one of the members of the team of economists devising the methodology, said they concluded that the best source of data to calculate the IVU collection rate was the Registry of Merchandise Imports, compiled by U.S customs officials.
Treasury Secretary Juan Zaragoza said the ideal global rate is 80%, as it would be virtually impossible to collect 100% of all sales tax revenues.
In Latin America, the five countries that have the highest collection rate, such as Chile, Argentina, Mexico and Uruguay, have an average level of 79.6%. In Europe, the five countries with the highest collection rate, such as Finland and Holland, hover around 92.9%.
“People could have the expectation that Treasury could commit itself to a 100% level of capture, but it is important for people to know that achieving a 100% level of capture is almost impossible,” Zaragoza said. “According to studies and experiences in Latin America and Europe, it is acceptable to propose 80%, which entails the most efficient use of resources.”
For 2012, the overall level of IVU collections in Puerto Rico was 55.6%. The collection rate for merchandise was 63.3% while the level in the area of services was of 41.6%.
The improvement of IVU collections in the area of merchandise can be attributed to the fact that the tax is being collected at the ports and that there are only a handful of importers. The level of merchandise imports was around $30 billion, of which $12.4 billion is exempt from taxes.
Besides Lara, economist José Alameda and professor Juan Villeta collaborated in the design of the methodology to calculate the collection rate.
Lara said that as part of the methodology, officials applied a markup level from the distributor to the retailer. He also said that the methodology took into account that government uses 5% of overall consumption.
Considering the study, the agency plans to reinforce its strategies to increase the collection of the sales and use tax, especially in the services segment. The agency has embargoed some 99 businesses so far for failing to pay the IVU for a total of $43.6 billion. Many of these businesses have filed for bankruptcy to continue operating but taxes have a priority in bankruptcy payments. Nonetheless, it will take five years for the government to receive such payments.