Allies of Puerto Rico Gov. Alexandro García Padilla have turned against an already approved increase in a business-to-business tax and conversion to a value added tax.
Most of the allies had key roles in getting this measures approved for future introduction when they voted for the current fiscal year's budget.
Legislative leaders in the governor's Popular Democratic Party are now promising to support bills overturning the planned revenue generators.
On Wednesday, Sen. President Eduardo Bhatia Gautier, Sen. José Nadal Power, House President Jaime Perell- Borrás, Rep. Rafael Hernández Montañez, and PDP gubernatorial candidate David Bernier all announced their opposition to the planned tax changes.
Garcia Padilla will not seek a second term as governor in this year's election.
Nadal Power and Hernández Montañez are the presidents of the Senate and House of Representatives' committees on the treasury and budget.
There has been controversy and dissension since the governor introduced his plan to convert the current sales and use tax to a value added tax in the winter of 2014-2015.
He got the legislature to approve a rise in the sales and use tax to 11.5% from 7% effective July 1, 2015. The legislature also approved a conversion to a value added tax from the sales tax system provided a special committee to be set up in fall 2015 recommended doing it. The committee ultimately recommended the VAT.
Meanwhile, Puerto Rico introduced a 4% tax on business-to-business consumption Oct. 1. The budget originally scheduled this to increase to 11.5% on April 1. Under pressure from Hernández Montañez, Bernier and others, the governor agreed to postpone the increase to June 1.
The PDP leaders are calling for legislation to stop the already approved tax changes. The opposition New Progressive Party legislators voted against the measures when they came for a vote in June 2015.
If a substantial number of PDP legislators joined with the NPP legislators in voting to stop the measures, they could overcome a gubernatorial veto. They would need a two-thirds vote in the Senate and House of Representatives.
"The people cannot stand another tax," Bernier said Wednesday. "The VAT would increase the cost of doing business in Puerto Rico."
Hernández Montañez said Wednesday that the increase in the business-to-business tax would hit small- and medium-sized businesses particularly hard and that this sector is generating 90% of the new jobs in Puerto Rico.
Puerto Rico Treasurer Juan Zaragoza has said that a VAT tax would be a good way at reducing tax avoidance in Puerto Rico. His department has estimated that 25% of all taxes that should be collected are not collected because of tax evasion in the "underground economy."
The dissention over taxes and tax rates comes amid the Puerto Rico government's much larger financial crisis.
According to the El Vocero news website on Wednesday, the governor affirmed that his government would default on at least some bond payments due Monday. The transition to VAT and the increase in the business-to-business taxes were aimed at increasing the government's revenues this spring and in coming fiscal years.
A member of the governor's press office did not immediately respond to a request for a comment for this story.
