A new study by the Foundation of the Puerto Rico Society of Certified Public Accountants (CPA) finds that Puerto Rico’s tax system places the heaviest burden on the working class while forcing businesses to pay the most Sales and Use Tax (IVU) on the purchases they need to operate, driving up the cost of living for those who contribute most. The study is titled "Radiografía estructural del sistema contributivo de Puerto Rico y sus principales distorsiones económicas."
Foundation president Rolando López said middle-income families earning between $40,000 and $60,000 a year pay income tax and, because they spend most of what they earn, also pay IVU and excise taxes while receiving little or no Earned Income Credit. He said the dependent deduction remains at $2,500 and would be $3,762 if adjusted for inflation.
According to the study, 42.7% of IVU collections come from business purchases to operate, and that tax, which businesses cannot recover, accumulates along the chain. López said the municipal patente is charged on sales whether or not the business earns a profit, and the inventory tax on stored merchandise whether or not it sells. The study projects about 213,000 fewer jobs by 2045 and a reduction of roughly $843 million a year in combined income tax and IVU collections if current trends continue, scenarios conditioned on that continuity.
CPA Society president Gerardo Torres called for evaluating the system as a whole, reducing unjustified differences between comparable activities, simplifying compliance and giving stability to the rules. The study recommends a substantive reform covering income taxes, IVU, excise taxes, property and municipal taxes, broadening bases, adjusting amounts for inflation and evaluating incentives by cost and added economic activity.