Feb 6, 2023
Puerto Rico Governor Pierluisi Unveils Sweeping Tax Reform Plan
(Bloomberg) -- Puerto Rico Governor Pedro Pierluisi on Monday unveiled a sweeping tax reform proposal that would slash individual and corporate rates and simplify the US territory’s tax code.
Under the proposal, Puerto Rico’s maximum tax rate for individuals would be reduced from 33% to 30%. The marginal corporate tax rate, now 37.5%, would change to between 17% and 33%, depending on the size of the business.
Altogether, the plan would save taxpayers about $545.5 million, Pierluisi said in a statement. It comes as the island of 3.2 million people — which saw its population decline 12% from 2010 to 2020 amid hurricanes, earthquakes and power outages — emerges from a historic bankruptcy.
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“My vision for the Puerto Rico of the future is that we will be a jurisdiction of low taxes that are easy to comply with,” Pierluisi said. The goal is to “compete against other states and territories, as well as other parts of the world by attracting people, commercial activity and capital.”
The proposal also includes additional tax cuts for seniors and changes to the sales and import tax, known as the IVU, that would make it a simplified sales tax.
Pierluisi said the government is working on a study that will analyze the broader impact of the changes before a bill is presented to congress and the federally-appointed oversight board, which will need to approve the measure.
“This is a good step in the right direction,” said Eric Santiago Justiniano, president of the Puerto Rico Manufacturers Association. “If these reforms get passed, I think both industry and consumers will come out as winners.”
In particular, the reforms to the IVU will help chisel away at the island’s inventory tax, which has been blamed for inflating the costs of goods and leading to shortages in the wake of storms and transportation disruptions, Santiago Justiniano said.
Despite being battered by earthquakes and hurricanes, Puerto Rico has seen strong tax revenue in recent years. For the last five years, the island has collected more taxes than forecast in its certified fiscal plans, the territory’s treasury secretary, Francisco Pares Alicea, said in the statement announcing the overhaul.
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“Our mission is to keep simplifying the tax system so that citizens of all the sectors will benefit,” Pares Alicea said.
(Updates with comment in paragraphs seven and eight.)
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