Puerto Rico Gov. Alejandro García Padilla is promoting a revised tax and spending proposal to handle a looming budget gap in the coming fiscal year.
In the governor's latest proposal, a 13.25% value added tax would replace the island's current 7% sales and use tax, according to a staff member who works in the governor's office. The VAT would consist of 11.75% for the commonwealth government and 1.5% for the municipalities.
The island’s 7% sales and use tax has 5.5% for the commonwealth and 1% for the municipalities. The commonwealth’s 5.5% feeds into COFINA, which collects sales tax revenue for the commonwealth’s sales tax-backed bonds, until collection needs are filled around December each fiscal year. After December most of the 5.5% goes to commonwealth’s General Fund. A final 0.5% feeds into COFINA until around December and after that point the revenue goes to the municipalities.
In the governor’s proposal, of the 1.5% portion a 1% sliver would go directly to the municipalities and 0.5% would go to a Corporation for Municipal Finance, which would hold money for bonds for the municipalities. Known as COFIM for its Spanish initial letters, it would be similar to the commonwealth's COFINA, which collects sales tax revenues for the commonwealth's sales tax-backed bonds.
The governor and commonwealth Senate president Eduardo Bhatia agree that the tax increase would be combined with a $500 million cut in government spending, a professional who works in the Senate said.
On Monday morning García Padilla met with Bhatia and House of Representatives President Jaime Perell- to discuss the proposal. That afternoon the governor presented it to members of his Popular Democratic Party in the Puerto Rico House and Senate.
Earlier this year governor had proposed a tax overhaul that shifted to a greater emphasis on consumption taxes and less reliance on income taxes. It would have included a value added tax of 16%, a provision that ran into opposition from a broad spectrum of Puerto Rico society.
Ultimately, the governor reached an understanding with Perell- to support a 14% VAT plus reduced income taxes. On April 30 the Puerto Rico House defeated this measure 28 to 22, with 22 members of the PDP party voting in favor and six voting against it. All 22 of the opposition New Progressive Party legislators voted against it.
Of the six PDP legislators who voted against the tax reform, four did not attend Thursday afternoon's meeting. Three of them gave excuses, the staff person in the governor's office said.
All PDP legislators are welcome when the governor meets with them on Thursday morning, she said. In that meeting the governor will try to reach a consensus solution for the commonwealth's fiscal year 2016 budget.
The budget for the current fiscal year is for $9.56 billion in spending. The government has indicated that it needs to come up with more than $1 billion in spending cuts and/or revenue increases to achieve a balanced budget in fiscal year 2016.
