I found some nice pro-IVA artwork on the Departamento de Hacienda website. Here are my favorites:
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| Income Tax Versus IVA |
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| Everyplace is using IVA |
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| Less taxes, um hum, sure... |
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| No more income tax withholding |
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| Again, income tax and IVU is less than IVA - refunds |
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| My absolute favorite! |
|
| Income Tax Versus IVA |
|
| Everyplace is using IVA |
|
| Less taxes, um hum, sure... |
|
| No more income tax withholding |
|
| Again, income tax and IVU is less than IVA - refunds |
|
| My absolute favorite! |
*
So all of the talk of IVU vs IVA skips a pretty important point.
Puerto Rico already has an IVA. See the key differences between these two definitions:
http://www.investopedia.com/terms/v/valueaddedtax.asp
http://www.investopedia.com/terms/s/salestax.asp
When the IVU was implemented, it was collected at the point of retail sale and paid to Hacienda. All businesses, had to collect expemption certificates or collect the IVU, under threat of audit. Hacienda is woefully understaffed for audits, so it became an empty threat.
Last August 1, the changes to IVU meant that its collected at the port, and every business must collect it from every purchaser, whether its a private individual or another business in a distribution chain. That, is a VAT/IVA, not a Sales & Use Tax.
This isn't a discussion of IVU vs IVA, that's pure marketing. This is a question of raising the tax rate. Its a 9-10% increase in the consumption tax rate.
In other blog posts, you imply that an IVA/VAT isn't going to make a difference in collecting from businesses evading the payment of taxes. You're wrong. It already has. If you work in trade of products in PR, you see it in your business. Its a natural consequence. Because when you pay your IVU on your import, you get a rebate for that amount against your collections from your customers. So you have every reason to report AT LEAST that much in sales. And if you're constantly reporting the same amount, you're likely to draw attention to the audit crew, which can now be more efficient in who they audit. Are there ways to lie, cheat, and evade against the current structure? Of course, but there's fewer than there were last July, and you pretty much have to pay at least part of what you owe. Both of which are good things for all of us.
So we already have an IVA/VAT.
It is an improvement in tax policy.
What we're really talking about here is 7% vs 16%. Its a tax increase. Its just an easier pill to sell when you give it a name and tell everyone we're changing the tax policy.
And yes, they should also look at reducing expenses. But then we're talking about laying off more government workers, aren't we? So should we all pay more, including those who up to now don't pay anything? Or should we put more people on the street?
Sadly, probably both have to happen.
*
You're right, there isn't much difference between an IVU and an IVA, operationally. The difference is the IVA will accompany a massive reform of the Puerto Rico tax system, theoretically eliminating "income tax" for many citizens.
As I've discussed, the tricky part of both of the IVU and IVA is whether they trap money that evades collection through the IVU or income tax, or the proposed IVA.
My early research shows that if there is a way to evade IVA tax collection, one will be invented. IVA evasion is actually more widespread than most people know or understand.
Re your example, what if your products are delivered in a way that you do not have to pay IVU, then you wouldn't care about a rebate. Just saying.
*
You're right, if you can get the products into PR without passing through one of Hacienda's "Gates", then you'll successfully have a way to avoid an IVA. The most common complaint I've heard is about Amazon being able to do so. But that's pretty difficult to do on the same scale that it was possible to avoid the IVU prior to last Aug 1. They don't have to catch everything, just more than they did prior to last year.
Prior to Aug 1, 2014:
Don't want to pay the IVU? Don't file for the exemption certificate, no one knows to check up on you. Pay the IVU when your suppliers require it, but fight it in every small way you can. (Example, have two stores? Register one, have all shipments delivered there, then transfer the product to your second store.) Now, collect the IVU from your end customers, looking all legitimate and nice, and then don't pay it to Hacienda. I think there's been a couple of high profile cases of this. Basically you just increased your revenue 7%, and for every time you can skip paying the IVU to suppliers, you reduce your costs by 7%. Let's say you're selling a $1 product for $1.50. That will lead you to increase your margin by 13%. A 13% raise, all pretty easily, without being very likely to get caught. Find suppliers doing the same or buy off the Island, and you're all set.
Now:
Well, you can maybe get away without paying Hacienda the 7% you've collected from customers, but the 7% your supplier charged you has already been paid. Your supplier isn't going to let you not pay them that 7% because they already paid it to Hacienda. So half of what you were benefiting from before has now gone into the government's coffers.
Who can get away with what you propose? Small retailers, pulgeros, colmados, etc. If you run two stores, you'd have to be flying back and forth to the US with your bags full of merchandise on return every day of the week, just to stock your shelves. Fact is, that's not their target. Who else, groups colluding to do so (suppliers, shippers, and retailers). That's what enforcement is for, and where they should spend their time.
What would Hacienda need to do to stop the vast majority of what you propose? Verify all products entering the maritime port have paid their IVU/IVA (done.) Move down the line to the next largest volume, which should be 4 shippers. USPS, UPS, FedEx, DHL. Not sure on a legal level, there may be nothing they can do about USPS. But the others, if they can enforce IVU collection at the maritime port, why not the airport? Its just a question of volume, which should be a pretty straightforward problem to solve. Again, they don't have to be perfect, they just need an 80% solution.
As far as changes to the income tax goes, you're right, they've proposed changing the income tax structure. But what's important in the discussion is the total tax rate, including VAT/IVU/IVA and income tax. I haven't done the math, but I can just about guarantee the total tax burden goes up under any proposed scenario.
I'm sure if someone asked an Italian businessman, he'd tell you all about how to avoid paying a VAT. And that's where you target your efforts. They don't have to catch everything/everyone, just more than they do now.
3 comments:
Anónimo
11 de marzo de 2015, 8:23 a.m.
Permalink this comment
1
So all of the talk of IVU vs IVA skips a pretty important point.
Puerto Rico already has an IVA. See the key differences between these two definitions:
http://www.investopedia.com/terms/v/valueaddedtax.asp
http://www.investopedia.com/terms/s/salestax.asp
When the IVU was implemented, it was collected at the point of retail sale and paid to Hacienda. All businesses, had to collect expemption certificates or collect the IVU, under threat of audit. Hacienda is woefully understaffed for audits, so it became an empty threat.
Last August 1, the changes to IVU meant that its collected at the port, and every business must collect it from every purchaser, whether its a private individual or another business in a distribution chain. That, is a VAT/IVA, not a Sales & Use Tax.
This isn't a discussion of IVU vs IVA, that's pure marketing. This is a question of raising the tax rate. Its a 9-10% increase in the consumption tax rate.
In other blog posts, you imply that an IVA/VAT isn't going to make a difference in collecting from businesses evading the payment of taxes. You're wrong. It already has. If you work in trade of products in PR, you see it in your business. Its a natural consequence. Because when you pay your IVU on your import, you get a rebate for that amount against your collections from your customers. So you have every reason to report AT LEAST that much in sales. And if you're constantly reporting the same amount, you're likely to draw attention to the audit crew, which can now be more efficient in who they audit. Are there ways to lie, cheat, and evade against the current structure? Of course, but there's fewer than there were last July, and you pretty much have to pay at least part of what you owe. Both of which are good things for all of us.
So we already have an IVA/VAT.
It is an improvement in tax policy.
What we're really talking about here is 7% vs 16%. Its a tax increase. Its just an easier pill to sell when you give it a name and tell everyone we're changing the tax policy.
And yes, they should also look at reducing expenses. But then we're talking about laying off more government workers, aren't we? So should we all pay more, including those who up to now don't pay anything? Or should we put more people on the street?
Sadly, probably both have to happen.
KW
18 de marzo de 2015, 11:11 a.m.
Permalink this comment
1
You're right, there isn't much difference between an IVU and an IVA, operationally. The difference is the IVA will accompany a massive reform of the Puerto Rico tax system, theoretically eliminating "income tax" for many citizens.
As I've discussed, the tricky part of both of the IVU and IVA is whether they trap money that evades collection through the IVU or income tax, or the proposed IVA.
My early research shows that if there is a way to evade IVA tax collection, one will be invented. IVA evasion is actually more widespread than most people know or understand.
Re your example, what if your products are delivered in a way that you do not have to pay IVU, then you wouldn't care about a rebate. Just saying.
Anónimo
19 de marzo de 2015, 10:26 a.m.
Permalink this comment
1
You're right, if you can get the products into PR without passing through one of Hacienda's "Gates", then you'll successfully have a way to avoid an IVA. The most common complaint I've heard is about Amazon being able to do so. But that's pretty difficult to do on the same scale that it was possible to avoid the IVU prior to last Aug 1. They don't have to catch everything, just more than they did prior to last year.
Prior to Aug 1, 2014:
Don't want to pay the IVU? Don't file for the exemption certificate, no one knows to check up on you. Pay the IVU when your suppliers require it, but fight it in every small way you can. (Example, have two stores? Register one, have all shipments delivered there, then transfer the product to your second store.) Now, collect the IVU from your end customers, looking all legitimate and nice, and then don't pay it to Hacienda. I think there's been a couple of high profile cases of this. Basically you just increased your revenue 7%, and for every time you can skip paying the IVU to suppliers, you reduce your costs by 7%. Let's say you're selling a $1 product for $1.50. That will lead you to increase your margin by 13%. A 13% raise, all pretty easily, without being very likely to get caught. Find suppliers doing the same or buy off the Island, and you're all set.
Now:
Well, you can maybe get away without paying Hacienda the 7% you've collected from customers, but the 7% your supplier charged you has already been paid. Your supplier isn't going to let you not pay them that 7% because they already paid it to Hacienda. So half of what you were benefiting from before has now gone into the government's coffers.
Who can get away with what you propose? Small retailers, pulgeros, colmados, etc. If you run two stores, you'd have to be flying back and forth to the US with your bags full of merchandise on return every day of the week, just to stock your shelves. Fact is, that's not their target. Who else, groups colluding to do so (suppliers, shippers, and retailers). That's what enforcement is for, and where they should spend their time.
What would Hacienda need to do to stop the vast majority of what you propose? Verify all products entering the maritime port have paid their IVU/IVA (done.) Move down the line to the next largest volume, which should be 4 shippers. USPS, UPS, FedEx, DHL. Not sure on a legal level, there may be nothing they can do about USPS. But the others, if they can enforce IVU collection at the maritime port, why not the airport? Its just a question of volume, which should be a pretty straightforward problem to solve. Again, they don't have to be perfect, they just need an 80% solution.
As far as changes to the income tax goes, you're right, they've proposed changing the income tax structure. But what's important in the discussion is the total tax rate, including VAT/IVU/IVA and income tax. I haven't done the math, but I can just about guarantee the total tax burden goes up under any proposed scenario.
I'm sure if someone asked an Italian businessman, he'd tell you all about how to avoid paying a VAT. And that's where you target your efforts. They don't have to catch everything/everyone, just more than they do now.
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