Puerto Rico Economic Pulse ©

February 2005: Fiscal Crossroads in Puerto Rico

VAT or Sales Tax against the background of a much needed fiscal reform

The PR government faces an enormous challenge to keep expenses aligned with revenues. For decades, the government has provided more goods and services to citizens than it can afford, thus confronting a structural deficit. The need to co-govern finds a fertile ground with two party platforms calling for tax reductions and more efficient public services. In sum, PR needs to increase revenues and reduce expenses to avoid further damage. In the end, the real challenge is fiscal reform. This issue discusses how revenues can increase via two types of taxes: the Value Added Tax and the Sales Tax. We present the facts; you decide which system is better for you and PR.