PDP Senator proposes inventory tax exemption

Popular Democratic Party Senator José A. Santiago Rivera

By THE STAR STAFF

Popular Democratic Party Senator José A. Santiago Rivera, who chairs the Senate Committee on Municipal Affairs, has unveiled a proposal to fully exempt 94% of businesses on the island from paying the inventory tax. The measure, he said, would not disrupt funding for essential municipal services.

The announcement comes amid ongoing tensions between merchants and mayors over the scope of eliminating the tax. Santiago Rivera said he has submitted the proposal to the Secretary of State and the technical committee reviewing the issue, urging them to analyze a 2021 report by the Senate Finance Committee.

“Based on the findings of that report, our proposal guarantees municipal revenue while exempting 94% of the commercial sector from paying the tax,” Santiago Rivera stated during a press conference.

The 2021 study, led by then-Senator Juan Zaragoza, used data from the Municipal Revenue Collection Center (CRIM) for fiscal year 2019. According to the report, the inventory tax generated $248.6 million that year. Of that amount, roughly $35.2 million came from 20,911 businesses with annual sales between $0 and $5 million—representing 94% of all businesses. The remaining 6%, about 1,335 larger businesses, contributed $213 million.

“This means a substantial number of small and medium-sized businesses could be exempted without causing a significant fiscal impact,” Santiago Rivera explained. He added that the central government would not need to replace the full $300 million municipalities currently collect from the tax. Instead, the shortfall would be limited to $35–$40 million, which could be covered in the general budget for fiscal year 2026–27.

Santiago Rivera emphasized that the measure would allow small businesses to maintain adequate inventory reserves to meet customer demand during emergencies, while municipalities would continue providing essential services. “We believe the amount the government needs to identify will not exceed $50 million,” he said.

The senator plans to introduce the proposal as legislation at the start of the next session, pending updated figures from the technical committee.