Home This Week Lead Stories P.R. government balances budget with $1.5 billion in new taxes, tariffs
Issued : Wednesday, July 3, 2013 12:00 AM
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P.R. government balances budget with $1.5 billion in new taxes, tariffs

By : MELINDA K. ROMERO-DONNELLY
Edition: July 4, 2013 | Volume: 41 | No: 25

To spend more than $9.8 billion in fiscal 2014, while refusing to reduce spending

After a grueling two months of evaluation and high tension between the governor and Legislature, Puerto Rico's budget and revenue bills for fiscal 2014 were finally approved.

Gov. Alejandro García Padilla's proposed bills received extensive amendments by the Legislature, and the final product is a budget of more than $9.8 billion with additional revenue taxes of nearly $1.5 billion.

Last-minute changes included in the revenue bills were few but significant (see related story on page 24). The original 1% tax on the insurance industry had exempted public employees' medical insurance, along with Medicare Advantage, Medicaid and Mi Salud. Public employees now are no longer exempt from this disposition.

The alternate basic contribution will remain the same for entities with a net income of up to $500,000, but those above that amount will see their contribution increase to 24%, up from 20%.

Another area that saw a last-minute increase was to the tentative minimum contribution, which will total 30% of the alternative minimum net income on amounts over the exempt quantities.

All businesses will now be required to open bank accounts in a local bank, even if the businesses aren't required to retain the sales & use tax, or IVU (by its Spanish acronym).

As for property inventory taxes, businesses will now be allowed to reduce the amount they paid in IVU from their inventory purchases.

Several of these new impositions have created despair in the business sector, which has raised the question about why the government is imposing such an array of new taxes while refusing to reduce spending. Critics of the new taxes have claimed the government continues to reward those in the community who don't comply with their responsibilities and defraud the government into allotting them more social benefits.

On the other hand, responsible citizens—those who comply with all state regulations, are debt-free or paying on time, and receive no economic assistance from the government—get slapped with additional economic burdens they can no longer afford.

The general consensus among citizens and legislators—even if they don't admit it publicly— is that the new taxes will have a lasting effect on the economy. The theory that these taxes will be temporary hasn't been brought up by any sector. "These temporary taxes have never been temporary. Once they are in place, no one ever eliminates them," said one Popular Democratic Party (PDP) adviser in the Legislature, who asked not to be identified.

"Another problem is that some sectors will take advantage of these taxes and charge more, even before the taxes go into effect. This regularly happens with gasoline wholesalers," the PDP adviser said. As of press time July 1, gas station owners were claiming they had already seen a 15¢-a-gallon increase on gas purchases compared with two days earlier.

Retailers questioned the additional charge, stating the tax was supposed to take effect on prospective purchases; however, wholesalers began charging the additional tax on products that were already on the island and paid for. These acts, once again, raise the question about the lack of supervision and proper fiscal controls for new imposed taxes.

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