Well here we go once again, I'm struggling with a heavy gift. For I am allowed to glimpse the future and I am saddened by it. Most everything I have written here about Puerto Rico's economic situation has come to fruition. So I share what I can, describe what I can, and predict what I can. But sometimes it all seems for nothing.
Over the long weekend the debate and analysis of our ongoing economic crisis continued. With the governor pushing for the implementation of the IVA, and everyone pushing back against it. One analysis I read from the Center for a New Economy here in Puerto Rico provides a good overview of the pros and cons of the proposed new tax.
One observation that the analysis was clear on was that placing a tax on food, medicine, and education was immoral. I agree. However, one aspect of the new IVA that was not pointed out is the potential problem for citizens who already do not pay income tax, such as the poor, the retired, and the disabled.
The basis for this new tax is replacing income tax for the majority of citizens with the new tax which is based on consumption, or what is known as a value added tax (VAT). But suppose that a citizen or household currently doesn't pay income tax under the current tax structure, then this new 16% tax on goods and services will go straight to the bottom line of their household budgets.
Another troubling aspect of this tax reform is the intention to refund the value added tax to those currently exempt from income tax, as mentioned above. How will this return process work? When will it begin? How will the government know how much I am due in my return?
As the debate continues, hopefully we will learn more about the detailed plans to implement the new IVA, and wait with baited breath to see if the new tax reform passes the Puerto Rico House of Representatives and Senate.