Senate approves 11.5% tax bill, eliminates tax on certain food items

The Puerto Rico Senate approved Monday the tax bill that calls for the implementation of an 11.5% sales tax at cash registers, up from the current 7% paid under the sales & use tax (IVU by its Spanish acronym), after being approved Thursday by the House of Representatives amid much debate and opposition.


However, it will still need to be ratified by the lower chamber after amendments were introduced by the Senate before voting on it.
The bill was passed with 14 yea and 12 nay votes, which included Popular Democratic Party (PDP) Sens. Ángel Rosa, Antonio Fas Alzamora and Gilberto Rodríguez, as well as the New Progressive Party delegation and Puerto Rico Independence Party Sen. María de Lourdes Santiago. PDP Sen. Rossana López didn’t attend the session. It now heads back to the House for a decision on the changes introduced by the Senate.
Among the several amendments introduced on the floor by the lower chamber, one called for applying the 11.5% sales tax on frozen, refrigerated, canned, packaged, “or in some other way preserved or packaged” food items. After a caucus meeting among majority senators before starting the debate on the bill, the PDP Senate delegation agreed to further amend the bill to exclude these from the proposed sales tax.
If the House decides not to concur with the Senate’s version, a conference committee will be needed to address the impasse, something that could further delay the legislative process.
Several industry players, particularly the Chamber of Food Marketing, Industry & Distribution (MIDA by its Spanish acronym), have been expressing concerns with the implementation of the sales tax on such food items, saying it would represent another blow to Puerto Rico consumers due to its negative economic impact.
However, others, including the Puerto Rico Restaurants Association (Asore by its Spanish acronym), argue that the House amendment leveled the playing field for all involved in the food industry. Before the lower chamber's vote, the organization had been pushing to exclude from the proposed sales tax prepared food items served at restaurants, which have been taxed since the implementation of the IVU.
Industry players held several meetings with Senate majority lawmakers, including President Eduardo Bhatia, aimed at eliminating the last-minute amendment introduced by the House before approving the tax bill last Thursday.
Although originally expected to be introduced during the upper chamber's session Friday, the bill had yet to be delivered by the House, as officials continued to include the amendments introduced by the lower chamber. "Understanding the urgency of the matter," Bhatia said Friday, the chamber will consider the measure on Memorial Day.
The final vote count at the House was 26 in favor and 24 against, including two PDP legislators, Reps. Carlos Vargas and Ángel Matos, and the New Progressive Party (NPP) minority delegation. NPP Rep. Rafael Rivera didn't attend Thursday's session.
Four of the six representatives who voted down Gov. Alejandro García Padilla’s first attempt at tax reform had expressed concerns with the latest bill as originally presented by La Fortaleza, claiming it didn’t include the entirety of an agreement reached with the governor two weeks ago, and which secured enough support for passage at the lower chamber. The four representatives argued that although they agreed to the IVU hike, they didn’t agree to the implementation of a value-added tax (VAT, or IVA by its Spanish acronym) at the end of the nine-month transitional period, as proposed in the bill. Instead, they said the agreement reached also called for evaluating whether to implement a VAT or returning to a tax at the ports, or arbitrio general, which they believe is the best option.
Among the amendments introduced to address their concerns, a commission would be created to evaluate the different alternatives to change the consumption tax, including a return to the tax at the ports. The Consumption Tax Transformation Alternatives Commission (Catic by its Spanish acronym) would comprise the Treasury secretary as its president, the Justice secretary, the Office of Management & Budget director, the Ports Authority director, members from the Senate and the House, as well as representatives from the private and labor sectors.
The commission would submit a report on the different tax models within 60 days of the law’s final approval. If it includes findings or recommendations favoring a move toward the tax at the ports, legislation would have to be presented within 10 days of the report’s presentation to address the findings.
The tax plan calls for a nine-month transition from the IVU to a VAT, a process that is expected to be completed by April 1, 2016. A 4% tax on business-to-business services, as well as professional services, was also included, and is slated to kick in Oct. 1. These services are exempt under the current tax system.
By : LUIS J. VALENTÍN

Senate approves 11.5% tax bill, eliminates tax on certain food items

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