P.R. Board Wants More Tax De­tail

The Bond Buyer - - Front Page - By roBerT Slavin

The Puerto Rico Over­sight Board ex­pressed con­cerns that a tax re­form plan agreed to by lead­ers of the lo­cal gov­ern­ment may be in­con­sis­tent with the fis­cal plan ap­proved this month.

Gov. Ri­cardo Ros­selló, Se­nate Pres­i­dent Thomas Rivera Schatz, and House Pres­i­dent Car­los Mén­dez Núñez an­nounced the tax deal on Mon­day.

In a press re­lease Mon­day night, the board said the lo­cal gov­ern­ment had pro­vided it with in­ad­e­quate in­for­ma­tion.

The board added that the pro­posal seemed to be in­con­sis­tent with the fis­cal plan, which was adopted as part of the board’s mis­sion un­der the Puerto Rico Over­sight, Man­age­ment and Eco­nomic Sta­bil­ity Act.

The fis­cal plan sets guide­lines for rev­enue and ex­penses as the is­land’s gov­ern­ment and pub­lic cor­po­ra­tions re­struc­ture their bond debt.

Lo­cal lead­ers have been work­ing on the tax re­form pack­age since the spring.

The board said the fis­cal plan clearly stated that any tax re­form must be rev­enue neu­tral,

with any mea­sures ex­pected to re­duce rev­enues off­set by al­ter­na­tive mea­sures that will in­crease rev­enues by equal amounts.

“Each tax mea­sure must also in­clude con­fi­dence build­ing el­e­ments, such as be­hav­ioral ad­just­ments and rea­son­able cap­ture rates,” The board said.

“To date, the Over­sight Board has not re­ceived a list of spe­cific pay­fors that will be used to off­set pro­posed de­creases in tax rev­enue.

“The leg­is­la­ture also added sev­eral new pro­vi­sions to the draft bill that, with­out fur­ther in­for­ma­tion, ap­pear in­con­sis­tent with the cer­ti­fied fis­cal plan,” the board added.

The board asked the lo­cal gov­ern­ment for a list of pay­fors.

TAX CREDIT

Among the lo­cal gov­ern­ment’s pro­posed tax mea­sures are plans to re­duce the levy from 10.5% to 7% for pro­cessed foods and elim­i­nate the busi­ness-to-busi­ness tax on firms earn­ing $200,000 or less.

The mea­sure also would of­fer a 5% tax credit to all tax­pay­ers, in­tro­duce an earned in­come tax credit, and re­duce cor­po­rate rates.

As part of the plan the lo­cal gov­ern­ment said it would in­tro­duce mea­sures that in­clude “be­hav­ior changes” that would in­crease tax rev­enues by $405 mil­lion.

The board’s com­plaints about the lo­cal gov­ern­ment’s tax re­forms con­tinue a strug­gle over pol­icy author­ity.

Mon­day evening’s state­ment wasn’t the board’s first com­mu­ni­ca­tion about the tax re­form to the lo­cal gov­ern­ment. On Oct. 18 board Ex­ec­u­tive Di­rec­tor Na­talie Jaresko sent a let­ter to Ros­selló, Rivera Schatz, and Mén­dez Núñez about it.

In her let­ter she said that the board re­quired a copy of the draft leg­is­la­tion and a list of the “spe­cific, quan­tifi­able mea­sures over the next five years that will be used to pay for any pro­posed re­duc­tions in rev­enue.” She said that im­prove­ments in com­pli­ance would not be counted in pro­jec­tions of im­prov­ing rev­enues.

In her Oct. 18 let­ter Jaresko said that the cur­rent tax re­form failed to shift from the Act 154 tax on for­eign com­pany prof­its to a “broader, more pro­gres­sive tax regime.” T

he tax re­form also fails to cre­ate a sim­pler, more broad-based tax sys­tem, which Jaresko said was a “chal­lenge to be ad­dressed in the fu­ture.” ◽

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