Puerto Rico Economic Pulse ©

February 2007: A Revolutionary Sales Tax in Puerto Rico

Understanding the tax and its economic impacts

In 2006, Puerto Rico replaced part of the old and fatigued excise tax system with a new one: a sales tax, the UVT, Uniform Value Tax. By shifting to a 7% sales tax, PR has moved in the right direction and joined the many countries in the world that rely on a consumption tax to balance their budgets. However, instead of being part of a long-term plan, the new tax system responds to the urgent needs of a government struggling with mounting debts and current deficits. In fact, many expect the sales tax to be the savior of the budget and end the mess in public finances. This issue provides insights on a system that is novel to Puerto Rico and which opens the door for a more complete analysis of the overall Puerto Rican economy.