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Puerto Rico drops introduction of VAT

  • May 2, 2015 | Richard Asquith

Puerto Rico drops introduction of VAT

The House of Representatives has last week rejected a proposal to introduce Value Added Tax into Puerto Rico in 2016 to replace the existing Sales & Use Tax (SUT) and Gross Receipts Tax. It has also voted against a rise in the SUT from 7% to 16% in 2015.

The immediate effect of the much-needed fiscal reform was to send the valuations of government bonds down. The island’s current deficit is over $70 billion per annum and rising. The national bank has warned of a government shut down at the end of the summer unless action is taken.

The current SUT is seen as too low, and on too narrow a range of products. In particular, the Use Tax requires consumer to self-assess their element of the tax, and declare and pay through a return. This discourages compliance, and has led to a large tax gap.

The ruling government had hoped that a VAT regime based on the OECD standards would go a long way to restoring the financial fortunes of the country, and restore the financial market’s faith in the government.

VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is VP Global Indirect Tax at Avalara, helping businesses understand their compliance obligations as they grow globally. He is part of the European leadership team which won International Tax Review's 2020 Tax Technology Firm of the Year. Richard trained as an accountant with KPMG in the UK, and went on to work in Hungary, Russia and France with EY.