Puerto Rico government and municipalities tax measures have the power to take from the economy much more than the $924 millions that are contemplated in the certified Fiscal Plan and the recommended budget for the next fiscal year that starts in July.
This is according to a review of the increases already imposed, the anticipated changes in the Fiscal Plan and the proposed laws, as well as the statements of experts interviewed by El Nuevo Día. Those experts alert that the central government and the State public entities – including public corporations and municipalities - will take from the company's and people’s pockets much more money than anticipated, adding new layers to the string of taxes and rates increase registered since 2006, year in which the fiscal and economic crisis started escalating to a point that lead the public debt to unmanageable levels.
In the case of municipalities, the administrations of Arecibo and Cabo Rojo have announced a charge for the garbage collection service. In San Lorenzo, the need for new incomes has taken the form of especial patents for ornament and “city beautification”. That is an income over companies gross sales that will be used to pay the ornament jobs in the streets and recycling programs. In a similar way, en Yabucoa a collection over the Municipal Police escorts to some funeral processions was imposed.
On the other hand, in public corporations, such as the Puerto Rico Electric Power Authority (PREPA), a permanent increase over the basic 1.025 cents fare for kilowatt-hour has already been imposed. Raises in the Puerto Rico Aqueduct and Sewer Authority (PRASA) by the beginning of 2018 are anticipated. The 10 cent increase that is being charged since last saturday on the tolls of highways PR-22 and PR-5, which are both property of the Transportation & Roads Authority (TRA) but rented since the beginning of the decade by the Metropistas company, could be added to this sum.
What is coming
It is a long list and carries on with additional charges that target consumers or beneficiaries of government programs. For example, the Fiscal Plan anticipates cuts in the Mi Salud program and the implementation of a co-payment system.
Likewise, starting August, a new tax reform, that among other things has the objective of expanding the corporate taxpayers basis, will be discussed while ideas to reform the Municipal Revenue Collection Center (CRIM, spanish acronym) are still being considered in order to find new funds for municipalities that, starting July, will enter a fiscal transitional process with the elimination of the $350 million received from central government transferences.
Meanwhile, arbitrary increases on cigarettes axex have already been legislated and there have also been increases in the imports for licences, insurances offered by the government and traffic tickets.
The previously mentioned only contemplates the changes made over the last six months or those that are currently being anticipated for next years. It does not take into account the tax burdens legislated by previous governments, such as the Sales and Use Tax (IVU, spanish acronym) increase to 11.5% and the raises in the tax over petroleum-derived products, among many other things.
“All this has an accumulative effect. Far from promoting a production model, you are trying to close a hole and all this is being looked at with a fiscal perspective. The problem has been seen as an accountability one and they are trying to solve it with more taxes or expense cuts. The problem is that it will not get us out from trouble. I am surprised because every day it looks more like it is going to explode. That is what is going to happen here if they do not start to see it as an economic problem”, said Public Administration retired professor, Mario Negrón Portillo.
The Treasury Internal Revenue assistant secretary, Francisco Parés Alicea, acknowledged that every one of this taxes had an impact on the economy. However, the scale of the impact depends in the type of imposition, the tax adjustment, and the taxpayers fulfilment costs.
“But it is clear, that the increases in contribution and charges would have an effect in the economic growth. Any tax burden in the private sector could slow down the economic growth”, said Parés Alicea.
“Many amendments have been made to the Code (of Internal Revenues) trying to satisfy an incapacity in oversight that was being dragged for many years. For the government it was easier to charge more to the ones that payed than to charge those who did not pay. That is being corrected now”, added the official.
According to the Fiscal Plan, the purpose of many of the income measures already legislated since January, is to attract $924 million to the government. The 56% of that money would be obtained with the extension of the Law 154 that imposes a tax to foreign companies, the 16%, with Treasury oversight improvements, and the 28%, with the changes made to fares and the rest of amended contributions.
Nevertheless, a 91% increase on the cigarettes tax was also contemplated in the fiscal document. The Legislature, however, left the increase in 74%. On the other hand, the raise on the traffic fine tickets that was initially thought around a 10%, ended with a very much higher rate. Some extra oficial estimations place the increase of fines in a 50%. That means, if an infraction demanded a $100 fine, under the new scheme, the infractor will have to pay about $150.
The income projection that generated more doubts is the one expected with a better Treasury oversight towards taxpayers. This includes the efforts on collecting the IVU over internet trading, an increase in electronic process.
Jesús Manuel Ortiz, representative of the minority Popular Democratic Party, indicated that this collection estimation by Treasury oversight is one of the most uncertain because of the wide margin of error of the projections.
“This has been seen before. Governments plea that with administrative changes in the Treasury they can collect more but then it does not suffice. In this matter it must be remembered that when the taxes are raised the economy is contracted and that disminishes the government incomes”, stated Ortiz.
The Internal Revenue assistant secretary, however, explained that this estimation has a series of specific initiatives that were measured at the moment of creating the estimations.
“It is not collecting $150 millions just because. This is framed inside a series of specific strategies”, explained the official.
The effect in the economy
The income increase of $924 million, only in the central government, along with $951 million expense cuts, will generate a fall of the Gross National Product, in constant values, close to 4.2%, according to the last economic growth projection made as part of the next fiscal year budget.
This, however, does not contemplate the fiscal initiatives that are going to be taken at a municipal level nor the tax changes in some of the public corporations.
The estimation of economic growth is two tenths higher than the projection included in the Fiscal Plan and it is, by far, lower that the anticipated last December. At that time it was believed that the fiscal cliffs would generate a fall of almost 16% in the economy.
Parés Alicea indicated that this projections contemplate all the changes that were programmed for the government in the Fiscal Plan. He also noted that he thinks that the recommendations or new fares in the public corporations are also included. However, the impact off the decisions taken at a municipal level is not necessary integrated.
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