While today, the Legislature would give way to the tax reform bill, the Oversight Board is inclined to reject the measure, since there are still doubts regarding the impact that legalizing thousands of slot machines outside casinos would have on the Treasury, which in turn could not be in line with the fiscal plan, El Nuevo Día learned.
According to sources, the Board has informed the government and the Legislature of its rejection of the language proposed about three weeks ago from in House while discussing the tax reform bill submitted by the government.
Back then, surprisingly, the authorization of some 25,000 slot machines that operate outside casinos –and that could reach 45,000 units in the future- was incorporated to the administration bill. This, despite the fact that a study conducted about three years ago and commissioned by the government itself concluded that authorizing the operation of slot machines outside casinos would reduce annual revenues by about $ 56 million.
Yesterday, Natalie Jaresko said in written statements that until the Oversight Board “can be convinced with data and surveys that demonstrate that the VLT proposal will not cannibalize the existing Fiscal Plan revenues, it is the Oversight Board’s perspective that this portion of the bill is not revenue neutral and remains inconsistent with the Fiscal Plan."
According to Jaresko, the Board has not received information from the Legislature that justifies the new public policy on slot machines. Then, Jaresko said that if implemented, the government should consider that operators of these terminals should be responsible for paying the cost of implementation and not the Treasury.
Until last night, however, the committee that dealt with the legislation had the intention of achieving an agreement on the amendments in order to get the bill to a vote. And that included approving the video-lottery.
Green light to video-lottery
Yesterday, the spokesman for the PNP (New Progressive Party) Senate majority, Carmelo Ríos, acknowledged to El Nuevo Día that the potential impact of the legalization of slot machines on government revenues was delaying the amendments negotiated in the committee.
"They (members of the Board) are looking at revenues. Here, there is a group that estimates very high collections and others that do not," he said.
Before these warnings from the Board, El Nuevo Día asked if the Legislature would be willing to remove the language on the slots from the bill.
"This is an agreement between the House, the Senate and the governor. The agreement is that it was included. In the Senate we have been very clear that we want a tax reform, but we want it to be what La Fortaleza, House and Senate agreed. We have been open to change things... but adding and removing things on what we already had agreements is not what we are looking for," said Ríos.
That is, are slots machines included?
- It's part of the agreement.
Have amendments been agreed on?
-They are well, well advanced. I hope to approve that tomorrow (today) before 3:00 p.m.
A lower SUT for 2019
The risk the legalization of slot machines poses for the Treasury is not the only risk factor that concerns the Board
Yesterday, El Nuevo Día revealed that in order for the Board to endorse the tax reform, the Legislature and the government negotiated with the fiscal entity to postpone the reduction of the Sales and Use Tax (SUT) on restaurant meals and prepared foods until October 2019. The government promised to reduce this tax from 11.5 percent to 7 percent.
This move regarding the SUT is detailed in an email from Adam Chepenik, advisor of the federal entity, about the sources of revenues to finance the tax reform.
According to the email examined by El Nuevo Día, Chepenik wrote to about 19 people -including a person named "Natalie", who could be the Board´s executive director- about the mechanisms to finance the tax reform. In the email, Chepenik points out that if the government considered delaying the reduction in the SUT, the Board would not oppose that proposal, especially if the SUT reduction is delayed until October 2019, because that would meet the criteria of the Board.
"We will not comment on the email," the Board told this newspaper when asked about the authenticity of Chepenik's letter.
On November 2, Jaresko wrote to legislative leaders questioning not only the adverse impact that the legalization of the slot machines could have, she also warned that the tax reform bill will increase “complexity in the administration of the tax system” and questioned the collection objectives associated with tax oversight.
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