CPAs Urge Action on Comprehensive Tax Reform, Warn Patchwork Fixes and Shrinking Workforce Mean PR Risks ‘Missing the Boat’

After decades of piecemeal tax legislation that has added layers of complexity and inequality to Puerto Rico’s tax system, leaders of the Puerto Rico Society of Certified Public Accountants (CCPA) and its Foundation (FCCPA) are calling for comprehensive reform, warning that continued inaction could undermine economic growth and further strain government revenues as the population ages.

The call follows a study the two organizations presented Nov. 10, a 183-page diagnosis titled “Structural X-ray of Puerto Rico’s Tax System and Its Main Economic Distortions,” prepared by the research firm ABEXUS and economist Edwin Ríos, as CB reported that day.

“The time has come to take action and follow through, or we risk missing the boat,” said CPA Gerardo Torres, president of the CCPA, in an exclusive interview with Caribbean Business.

According to CPA Rolando López, president of the FCCPA, tax legislation on the island has frequently addressed isolated issues for the past 30 to 40 years, and policymakers have traditionally favored the immediate fiscal impact of a proposal, or how much revenue it will generate or cost.

That type of patchwork legislation has not only created a system that is increasingly difficult to navigate, but also one that is increasingly unjust and disproportionate to both consumers and businesses on the island.

“There is no other option. The political will to make changes needs to emerge.”

CPA Rolando López, president of the FCCPA

The study’s numbers show how that plays out. It counted 152 tax changes between 1994 and 2025, 98 of them since 2011, or about six a year, which raises compliance costs and makes long-term planning harder, particularly for small and midsize companies.

It also found that when a regular corporation can pay up to 37.5% and one with certain decrees pays 4%, tax treatment rather than productivity can decide which investments are profitable.

The sales tax shows a similar distortion. The study estimates that $1.72 billion of the $4.04 billion collected in 2025, or 42.7%, came from purchases companies make to operate, a tax they cannot recover and that accumulates at each stage of the supply chain.

That share is close to the U.S. state average of 41.7%, but at 11.5% the IVU rate is the highest under the U.S. flag and is applied to a narrow base.

One of the main findings is that middle-income taxpayers bear one of the most disproportionate burdens, with effective income tax rates rising sharply for individuals earning between $30,000 and $100,000, and households earning roughly $40,000 to $60,000 receiving little or no Earned Income Credit while still facing considerable living expenses.

The leaders explained that many middle-income households pay income taxes as well as consumption taxes, leaving limited room for savings.

Add inflation to the mix, and taxpayers are pushed into higher tax brackets without a corresponding increase in real income, furthering the strain on Puerto Rico’s shrinking middle class.

The study found that effective rates quadruple between $30,000 and $100,000 of income, from 2.9% to 12.6%, and that the $2,500 deduction per dependent would be $3,762 today if it had been indexed to inflation.

Demographic decline adds urgency to tax reform

In response, the study floats replacing a patchwork of corporate tax rates, which run from 4% for companies with certain decrees to 37.5% for a regular corporation, with a single rate set below the U.S. level.

It also suggests rethinking the Sales and Use Tax (IVU, by its Spanish acronym), through a value-added tax or a broader base with a lower rate, along with the inventory tax, the municipal license tax and a property tax still based on 1957 values.

It further projects that, if current trends continue, Puerto Rico could have approximately 213,000 fewer jobs by 2045 and a potential $843 million annual decline in combined income tax and sales tax revenues, expressed in 2025 dollars. The authors describe these as conditional scenarios, not forecasts.

Fewer working-age residents means fewer income taxpayers, and according to the leaders, an aging population could alter consumption patterns and the composition of taxable income, inviting even more patchwork legislation, such as taxing Social Security and pensions.

“The study helps raise the alarm. The warning signs have been there for some time, but now the sirens are sounding. This crisis will explode in the next 20 years, but we need to take action now,” said Torres.

The CPA leaders argue that meaningful reform should simplify the tax system, broaden its base and encourage economic growth.

While introducing additional tax credits could increase compliance requirements and administrative complexity, a reform should be designed around Puerto Rico’s long-term economic development rather than short-term revenue considerations.

The leaders also suggest evaluating how tax policies influence economic behavior to reduce inconsistencies between different taxpayer groups moving forward.

“Implementation won’t happen overnight, but we need to conduct the necessary analysis to drive Puerto Rico’s economic development. A comprehensive overhaul would require careful analysis and phased implementation,” said Torres.

Will policymakers respond?

The CPA Foundation hopes the study will provide policymakers with technical evidence to guide future legislation, while both leaders expressed optimism that elected officials will take the findings seriously.

“There is no other option. We think that the political will to make changes needs to emerge,” said López.

The leaders presented the study Tuesday, Nov. 10, at the CCPA’s headquarters in Hato Rey. Attendees included a former secretary of the Puerto Rico Treasury Department and a former assistant secretary of internal revenue, who agreed on the urgency with which current policymakers should approach the topic.

Torres hopes the information reaches elected officials who are willing to address the issue responsibly. The study was released strategically, the leaders said, at a time when public discussion about tax reform has faded, in the hope that the data will capture the attention of the right people.

Both leaders maintain that the study provides a foundation for a broader conversation about Puerto Rico’s economic future.

Whether that evidence translates into legislative action, however, will ultimately depend on the willingness of policymakers to step away from patchwork legislation and address the system as a whole.