• The San Juan Daily Star

Treasury chief submits preliminary report on tax reform to governor

Treasury Secretary Francisco Parés Alicea

By The Star Staff

Treasury Secretary Francisco Parés Alicea has given to Gov. Pedro Pierluisi Urrutia a preliminary report with recommendations and proposals for the overhaul of Puerto Rico’s tax system.

The report was prepared by the Advisory Group to Simplify and Improve the Tax System of Puerto Rico.

“This document is a compilation of the ideas and proposals received, from both the public and private sectors,” said Parés Alicea, who is also the government’s chief public finance officer. “It is the initial result of an aggressive work plan, which contains the input of professionals with expertise in the issues discussed.

The advisory group was created after an Oct. 7, 2021 executive order and is chaired by the Treasury secretary.

Other public officials serving in the advisory group include the executive director of the Office of Management and Budget, the Economic Development and Commerce secretary and the executive director of the Municipal Revenue Collections Center, along with other collaborators from various agencies.

The advisory group members from the private sector are representatives of the Certified Public Accountants Association, the Puerto Rico Chamber of Commerce, the Manufacturers Association, and the Economists Association. In addition, it includes two members appointed directly by the governor.

The issues evaluated by the advisory group included tax rates and passive income for corporations and individuals, municipal taxes, excise taxes including motor vehicle excise taxes, changes to the sales and use tax (IVU by its Spanish acronym), licenses and permits, the Incentives Code, and controls and measures to prevent tax evasion.

The review of the current tax system by the advisory group considered aspects such as: simplifying personal income taxation and making it more equitable; corporate and business income taxation, to promote investment and employment; municipal taxes, seeking equity and efficiency; consumption taxation, including the IVU and excise taxes, seeking greater efficiency; and licenses and rights, to improve their collection capacity and avoid evasion and fraud so that they promote compliance through modifications to laws, regulations and administrative processes.

Parés Alicea said the representatives of associations and private organizations are in the process of submitting additional recommendations that will be analyzed and discussed in the final report.

“We need to integrate important information on the transition of Law 154, finalize the analysis and estimates of the recommendations that represent a potential fiscal cost, and identify possible repayment measures to subsidize the impact on revenues to the treasury,” he added.

Once the pending issues have been addressed, the advisory group will work on the final report, guaranteeing that the proposals contained responsibly contemplate all the relevant factors in order to achieve a robust, complete and fair tax reform for citizens and future generations, the Treasury chief noted.

Pierluisi said last year that he wanted to simplify tax filing for small businesses and come up with solutions for a tax on manufacturing firms. Puerto Rico’s tax rate is 37.5%, while at the federal level and in other states it is 21%.

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