The uncertainty surrounding the sources of income that must support the changes to the tax system under consideration in the Legislature may become an enemy of the implementation of the fiscal stabilization recipe for Puerto Rico.
The contributory system is the pillar of the Fiscal Plan revenue projections. Changing it without proper and sustainable sources of revenues is equivalent to weaken the opportunities of the budgetary balance necessary to pay for public services and debt restructuring. The takeoff of the economic development of the island depends on this balance.
According to the government, the impact of contributory changes on the Treasury would be $ 1,127 billion, with a $ 170 million surplus, both in five years. It proposes a corporate relief from 39 to 37.5 percent and 5 percent incentive to individuals. It contemplates tax elimination for transactions between companies, B2B, and taxpayers with income of $ 200,000 or less. The Sales and Use Tax (SUT) on prepared foods will also be reduced.
The bet to pay for these changes lies mainly in slot machines legalization and a new design that seeks to combat tax evasion in small businesses and people who work on their own. It is important to clarify the mechanisms of the Department of the Treasury for the successful oversight of these components.
Increasing gambling activities in a bankrupt island and with a high incidence of mental health problems, in order to reduce some sectors contributory responsibility, is certainly a questionable public policy. In addition, demographic changes and social trends affect gambling volume and, therefore, revenues stability. So, it is necessary to specify the measures through which a 5 percent increase in collections per year is foreseen.
Neither can the possible impact on the slots sector – that already pays taxes that finance important projects on the island – be overlooked.
On the other hand, the bill does not address the deficiencies of the tax incentive system. Its revision had been proposed as a source to neutralize the impact of tax reductions, linking incentives to economic or social performance.
According to the government, the bill includes the return of the work credit which was in force until 2013. The Oversight Board considers it as an incentive to formal work culture.
Tax on business inventories has been maintained, considered as an obstacle to reconstruction due to the impact of stored goods tax. Being shy in the corporate rate reduction, the bill does not adequately address the impact of the federal reform in Puerto Rico, especially in the industrial sector that generates revenues to The treasury and employment.
In the midst of uncertainty, this fiscal measure does not show compliance guarantees with the fiscal plan. The document proposes a $ 2,216 billion increase in public funds by the end of the sixth fiscal year. Fulfilling this task requires a diversity of structural reforms duly executed.
The Puerto Rican government has the responsibility to create the conditions that overcome budget deficit. Every initiative has to harmonize with that objective.
There is no doubt that individuals and companies that fulfill their responsibility deserve fiscal justice. This must be done in harmony with the fiscal recovery project, not for populist purposes to have votes.
Our island cannot give the impression that, in bankruptcy, it rests on the $ 82 billion in projected federal funds, for hurricane recovery, to breach the fiscal objective.
This would be a new challenge to PROMESA created to achieve financial health that will allow the island´s return to capital markets. A new judicial controversy would feed Washington´s distrust, where the key to reconstruction funds is.
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