The Oversight Board Executive Director, Natalie Jaresko, admitted yesterday that the Treasury Department's request to replace the revenues generated through Act 154-2010 represents a risk to the adjustment plan that the fiscal entity must submit soon.
Without anticipating when the government's debt adjustment plan will be submitted to Judge Laura Taylor Swain, Jaresko said yesterday that changes to Act 154 were proposed since the 2016 fiscal plan, that is, before it the Board was established, she regretted, however, that no action was taken over the matter.
Jaresko said that this “poses a risk to a significant part of the revenues in the adjustment plan,” however she added that she is hopeful to identify an alternate form of taxation that provides the same level of revenue to the government budget and equivalent treatment (to this tax) for these companies.
On September 10, during the governor´s first day of meetings in Washington D.C., U.S. Treasury Secretary Steven Mnuchin asked Wanda Vázquez Garced for a plan to phase out the 4 percent tax imposed on Foreign Controlled Corporations (CFC) through Act 154.
Mnuchin's request was not new. Last year, in an interview with El Nuevo Día, the U.S. Treasury Secretary said that looking for an alternative to Act 154 was still being discussed with the Puerto Rican government.
The newspaper asked Jaresko what actions the government took, if any, over this tax. She said each time she asked about that, the answer was to request to postpone the issue.
Now with new officials in the government, headed by Vázquez Garced, Jaresko indicated everything will depend on the speed with which the administration acts and on establishing a dialogue with the twenty companies that pay the tax and learn about their situation in the context of the federal tax reform.
"It's a risk, it's an important element if you don't deal with it at the right time because it's $2 billion in revenue, but the Board has been very clear for three years," Jaresko said.
During the last general Title III cases hearing, the Board told Judge Swain that the entity would file the adjustment plan - the second under that chapter of PROMESA - by the end of the month. About three weeks ago, upon leaving La Fortaleza, Jaresko anticipated that the plan contemplated a 66 percent cut in the government's obligations, including the public debt and what is owed to suppliers and contractors.
The Tax Expenditure Report
Jaresko spoke with El Nuevo Día just before the Board's public hearing on economic development, to discuss business management issues in Puerto Rico, to be held today. The seventeenth public meeting to discuss debt restructuring will be held tomorrow.
Today's hearing will be the first since Rosselló Nevares was compelled to step down and will take place while Puerto Rico waits, both for the filing of the adjustment plan and for the U.S. Supreme Court hearing on the constitutionality of the Board, which is scheduled for October 15.
According to Jaresko, the members of the Board decided to revisit economic issues and initiatives to improve services after the government implemented several strategies to consolidate its operations.
For Jaresko, today's hearing could represent an opportunity to start a dialogue on the government's fiscal spending, now that this administration has released the first Tax Expenditure Report (IGT, Spanish acronym).
"It is a well-prepared report," said Jaresko, indicating that the content of the IGT outperforms tax expenditure reports in other jurisdictions and describing the document as a success in financial disclosure reports.
Last Sunday, El Nuevo Día reported that in fiscal year 2017, due to hundreds of special tax benefits granted to individuals and companies, $20.614 billion did not reach the Treasury.
Jaresko said the IGT shows that in Puerto Rico there are many tax benefits very similar to those in other places, such as deductions of mortgage interests and special rates to retain professionals, such as doctors, and other high-impact benefits, like those granted to the industrial sector.
However, according to the executive, the IGT shows that there are other special deals that should be reviewed.
"Considering the fiscal reality of the island today... we have to see if some of these incentives are not so beneficial. I think it's a discussion we should have, and everyone should question the economic value of these incentives," Jaresko said.
According to Jaresko, in today´s hearing, the Board also wants to find out about the progress in the reorganization of agencies that affect the climate for doing business in Puerto Rico. She said it seems that the Department of Economic Development and Commerce (DDEC, Spanish acronym) would be one of the successful stories in this area, but indicated that there are other agencies "that have not moved toward a faster consolidation."