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Puerto Rico Launches Tax Reform Guide

by Mike Godfrey,, Washington

24 February 2015

On February 20, the Puerto Rican Treasury Department announced the launch of a website detailing the Government's proposals to overhaul the nation's tax regime, including the introduction of a value-added tax (VAT) and substantial cuts to personal income tax rates.

The website includes explanatory tables with the proposed reduced PIT rates and sections on how a VAT works.

"We created a microsite to guide citizens and clarify all doubts about the transformation that will allow us to create a more streamlined tax system and put more money in the pockets of individuals. … We invite all citizens to enter the page and do the math, so that they can reach their own conclusions," said Treasury Secretary Juan Gómez Zaragoza.

Under the tax reform plans, the current Sales and Use Tax (SUT) and the Gross Receipts Tax will be replaced with a VAT. With the consequent expansion of the consumption tax base, Puerto Rico will introduce a PIT-exempt threshold of USD40,000 for individuals and USD80,000 for married couples, removing 850,000 taxpayers from the tax net.

With the shift from direct to indirect taxation, new PIT rates are expected to be no higher than 21 percent under the new tax code, down from as high as 38 percent currently, while the tax rate on corporations could fall to 25 percent.

In addition, it is proposed that those on incomes below USD35,000 would get a partial refund of VAT, with those on incomes below USD20,000 receiving a full refund. Prescription medication, groceries, private property leasing, and public schooling would be exempt from all taxes.

TAGS: individuals | tax | business | value added tax (VAT) | sales tax | corporation tax | internet | Puerto Rico | tax reform | individual income tax | Tax

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