FOMB proposes cap on inventory tax to explore alternatives for its repeal
By The Star Staff
The Financial Oversight and Management Board (FOMB) proposed Wednesday putting a cap on the inventory tax to allow time for a review of alternatives toward its elimination.
The FOMB insisted on the repeal of the inventory tax arguing that it is critical to secure supplies for Puerto Rico, prepare for emergencies, and help families buy the products they need.
“The tax hurts Puerto Rico families because it leads to higher prices and lower inventories, including during natural disasters like Hurricane Maria when supplies are critical for survival and recovery, and it hurts business because it discourages investment,” the FOMB said in a statement.
Freezing the inventory tax would immediately make more goods available and reduce retail prices, and improve the Puerto Rico business climate. “But eliminating the tax in a revenue neutral manner
at this point would be difficult. Municipalities must not be worse off financially after a reform or repeal of the inventory tax to ensure they can deliver important services to their residents,” the Board said.
The inventory tax accounts for $237 million of the total $447 million of personal property tax collections and constitutes a significant source of revenue for municipalities.
In that regard, the Oversight Board recommended a temporary cap of the inventory tax at the level of current payments. “The cap would make more goods available but also guarantee inventory tax revenue equal to highest annual collections from prior three years, so municipal finances would not suffer a decline in revenue while businesses increase their inventory and investments without an additional tax burden. Such a cap would not affect other taxes,” the FOMB said.
The Oversight Board also suggested that during the period of the inventory tax cap a committee representing mayors and the Municipal Revenue Collection Center (CRIM) study and review appropriate alternative options.
As the STAR has reported, the FOMB besides repealing the inventory tax, also has said it supports the repeal of personal property taxes, which is the tax generally imposed on certain assets that can be touched and moved, such as cars, livestock, or equipment as long as alternatives to eliminate them are revenue neutral. One option for reform is Puerto Rico’s real property tax system given that the tax is currently constrained due to exemptions and exonerations. Further reform of the real property tax system may provide the revenue needed to make up for and thus eliminate personal property taxes, the Board has said. House Treasury Committee Chairman Jesus Santa said the legislature does not support making changes to the property tax system.