Puerto Rico Daily Sun

by Xavira Neggers Crescioni

Tax reform legislation the government plans to present and pass during the second half of the year will include tax cuts for everyone – both individuals from all classes and local companies – in Puerto Rico, Gov. Fortuño said Thursday upon presenting the team of officials he has charged with amending the island’s tax code.

“Whether or not they are in the middle-class, everyone is going to receive a tax cut, and that’s really the change that we have. We are going to reward those who work from sunup to sundown,” Fortuño said, adding island’s labor participation rate is 20 percent below that of the U.S. average. “I am convinced this is going to be an additional tool to push our economy forward.”

The tax reform has four aims: reducing the tax burden for all local individuals and corporations; rewarding work and success in the private sector; fostering economic development, both investment in and savings in Puerto Rico; and simplifying the tax system so that it is easier to use, Fortuño said.

“This is a lot more than reducing tax rates … I guarantee you that this will be a tax reform that is just, attractive and fosters work,” Fortuño said.

A final draft of the proposed legislation should be ready by August so that the tax reform bill can be presented and passed in the second session of the Legislature, he said, adding taxpayers will first feel tax relief in 2011.

Other administrations have attempted and failed to reduce local tax rates because of the government’s strapped finances, but Fortuño said he is sure he will be able to pass tax reform legislation this year because the New Progressive Party-controlled Legislature is on the same page as him and this is a campaign promise he plans to fulfill. While tax cuts initially might not be revenue neutral for the island’s Treasury, Fortuño said he is betting on the long-term gains of cutting taxes to help ameliorate the government’s strapped finances and foster productivity in the private sector.

“Eventually what we are aiming at is increasing collections, but this will cost the Treasury because it is not going to be revenue neutral all the time,” he said.

“When you generate economic activity you can glean more income even though tax rates are lower…To do this you also have to attack evasion to broaden the tax base because when more people pay what they should then everyone gets to pay less,” Xenia Vélez, former Treasury Secretary under Gov. Rosselló, added.

Xenia Vélez to head tax reform committee Fortuño appointed Vélez as executive director of a committee of public officials that will develop proposed tax reform legislation. Vélez, who is in the process of resigning from her job at the McConnell Valdés law firm, is slated to take the post on Feb. 15. She will be paid as an advisor by the Government Development Bank, which is negotiating her salary, Fortuño said.

Treasury Secretary Juan Carlos Puig, Government Development Bank President Carlos García; Economic Development Secretary José Ramón Pérez Riera; Chief of Staff Marcos Rodriguez Ema, and Sen. Migdalia Padilla and Rep. Antonio Silva, who respectively chair the Senate and House Treasury committees, are the public officials Fortuño charged with developing new tax legislation.

While the committee will receive suggestions from private sector members such as the Puerto Rico’s CPA Association, the committee will develop the legislation, Fortuño said, adding he expects a final draft of the tax reform bill by August.

Committee members will base their estimates on Treasury figures from tax filings last year for the 2008 tax year, which the agency is still compiling. Among matters they must establish is how much on average it takes a person to live in Puerto Rico, Vélez said, adding the CPA’s Association is slated to provide this information to the committee.

“You can’t tax a person so much that they no longer have enough to live on because you are promoting evasion,” Vélez said.

“The underground economy must start paying…When you have a tax system that you consider to be reasonable and just, it makes sense to start paying to avoid the risk [of an audit or penalties. Secondly we have to put more teeth [into tax penalties] so that those who don’t want to pay, will pay because it will cost them to much not to do so,” Fortuño said. “It will be up to the committee to determine the balance between these two sides [of the tax equation].”

“[Tax reform] is aimed so that it makes sense for you to work and so that you who work from sunup until sundown have the opportunity to work more. The problem is when you have a partner called government who does not work and keeps what you earn because this does not foster work,” Fortuño said. “But, if you are able to keep more of your check, it will promote you to work extra hours, take on another job, or take a risk that could economically beneficial to you. This is how work is promoted.”

Fortuño said bills lawmakers propose this session that require changes to the island’s tax code should be set aside and become part of the discussion on proposed tax reform bill that the legislature will pass.

This entry was posted on Friday, February 5, 2010 at 11:03 am and is filed under In the News. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.