The House is debating a tax reform proposal that faces great challenges regarding the aim of achieving tax justice for individuals and businesses, as part of the structural transformations necessary for the progress of Puerto Rico.
The first challenge is to ensure that tax revenues support the projections tied to fiscal revitalization. The piece discussed in the House contemplates reductions in the rates for individuals and corporations, and in the Sales and Use Tax (SUT) for prepared foods.
Meanwhile, the recurrence of tax on business inventories discourages economic activity and contributes to the delay in the island´s reconstruction, due to its effect on materials shortage. The business sector has objected to the tax on movable property because it penalizes that productive activity that depends on inventories of materials, equipment and products in general.
It will be up to legislators to identify the wise way to neutralize the effect, in municipalities, of the potential elimination of that contribution - that produces $ 168 million per year.
The success of a tax reform is also based on the ability to expand the tax base, which is tied to the fair distribution of tax liability. For example, appropriate regulation in the slot machines sector could contribute to that objective, ensuring fair treatment to all its members, including those that already fulfill their responsibility. The government estimates that the tax initiative would annually bring $ 100 million to the Treasury.
For there to be tax justice, each individual or business taxpayer must contribute in proportion to their income. Therefore, efforts must be focused on reducing high rates of evasion, strengthening the authority of the Department of Treasury to undertake a more efficient oversight of income tax returns and SUT collection.
It is undoubtedly important to study the recommendations that the United States Department of the Treasury will present regarding the property tax in Puerto Rico. Meanwhile, the Municipal Revenue Collection Center (CRIM, Spanish acronym) must resolve the accumulation of registered properties that have not been assessed or billed. That is a source of additional income for municipalities within the current legal framework.
At the same time, a structure of effective tax incentives must be developed. The State investment has to generate clear economic or social returns. The integration of exemptions, credits and disbursements that benefit companies and private entities into a single code is pending approval in the Legislature. This must ensure that incentives really result in the creation of jobs and the social fabric that the island needs.
Regarding this point we must emphasize the importance of stimulating labor participation on the island, with the creation of a work credit at local level that would benefit the most vulnerable workers. Encouraging work culture helps to combat those patterns of institutional dependence and the informal economy that does not reach public coffers.
It is necessary to address these challenges to achieve a comprehensive and viable reform of the tax system that brings the government closer to the goal of leaving behind deficit budgets within five years, as provided in the certified fiscal plan. Therefore we must listen to the responsible and timely warning of the Secretary of Treasury, Teresita Fuentes, to adapt the bill to the parameters of the Oversight Board.
It is essential to create a simpler and more efficient tax system that is in harmony with the development of the Puerto Rico we want to be in the coming years.
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