First the buses became free… and now there is a VAT-break until midnight on Saturday! I have to say that the tricks (??) to win more votes are getting better and better… You see, it is election year in Puerto Rico!
Well, maybe I am a little too cynical and maybe the governor just wants to help the victims of the recent heavy rains and stimulate the economy at the same time? The official explanation is that the decision to free purchases from VAT (IVU in Puerto Rico – Impuesto de Ventas y Uso) is to alleviate the sufferings of the people who have lost their belongings due to the floodings, and the legal framework for the exemption is that the island is under a state of emergency due to the bad weather. The local newspaper El Nuevo Día quoted the Governor as saying that since the people affected by the rains and inundations are busy cleaning their homes, the VAT exemption would be extended until Saturday night while initially it was only intended for Tuesday afternoon and evening.
El Nuevo Día is running a poll on their web-site where the readers can vote whether they are in favour or not of the VAT exemption; so far more than 67% are saying yes… Nevertheless, the political rivals to the Governor are not supporting the decision to exclude all goods and services from VAT and claim that he is misinterpreting the new law from 2007 regarding VAT exemption in cases of state of emergency. According to the critics, the Department of Treasury (Departamento de Hacienda) should establish a list with goods that are considered necessary such as food, fuel and construction materials, and only these should be freed from VAT.
Apparently the VAT exemption has lead to a huge national shopping spree, and people are already making all their purchases for Christmas. However, the VAT in Puerto Rico is only 7%* and as the before-mentioned newspaper pointed out very wisely in an article today, you don’t “save” much if you make purchases that you can’t pay immediately – i.e if you use the ever-so-popular credit card!! Considering that it is the end of the month and I assume that most people haven’t received their monthly salaries yet, the credit cards are going to be brought out more than usual. How does it stimulate the economy in the long run if people are using credit to make their purchases? Well, according to a professor in economics from the University of Puerto Rico** this VAT-free shopping spree does not stimulate the economy at all – what people buy now, they obviously won’t buy again later on when the VAT is back. (Sorry that all the linked articles are in Spanish, I haven’t found any information in English yet)
On a more personal note, I wasn’t aware that we wouldn’t have to pay taxes when I suggested to O yesterday that we should check out the sales in Gap. Swedish B and I had already bought a few things in the shop on Sunday and keeping in mind that we are probably leaving the island in January, I thought that it might be a good occasion to buy a few cheap warm clothes! As we don’t usually go shopping on a week day I couldn’t tell if the shops very more busy than usual, and we only saved around $6 on our purchases that we would have made anyway… Actually we saved a lot more from the sales than from not paying VAT 😉
*) In Sweden there are 3 levels of VAT – 6, 12 and 25%. The 6% VAT is applicable on newspapers, books, domestic travel by bus, train, taxi or plane etc. 12% VAT is for food, hotels and camping etc and the 25% VAT is the general level that applies to goods and services.
**) I learnt a new Spanish expression through this article – mucho ruido y pocas nueces (a lot of noise and few [wal]nuts!) which I guess could be compared to the expression much ado about nothing!