Puerto Rico Legislature Nixes VAT Tax, Approves PRASA Securitization Bill

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27 March 2012 - Washington, DC - Secretary of Labor Hilda L. Solis meets with Senator Alejandro Garcia of Puerto Rico and Cecille Blondet, Mr. Garcia's media assistant. *Official Department of Labor Photograph*** This official Department of Labor photograph is being made available only for publication by news organizations and/or for personal use printing by the subject(s) of the photograph. The photograph may not be manipulated in any way and may not be used in commercial or political materials, advertisements, emails, products, and/or promotions that in any way suggest approval or endorsement of the Secretary, or the Department of Labor.

Puerto Rico's legislature rejected the rollout of a value added tax and approved a measure aimed at helping the Puerto Rico Aqueduct and Sewer Authority sell bonds.

On Monday the Puerto Rico House of Representatives voted 45-to-0 to stop the planned increase of a business-to-business tax to 10.5% from 4%. The increase would be one of the final steps towards introducing a value added tax.

On the same day, Puerto Rico's Senate voted to approve a measure allowing the securitizing of PRASA's debt, albeit in a form that brought a quick criticism from the president of PRASA.

Puerto Rico Gov. Alejandro García Padilla first proposed a value added tax in the winter of 2014-2015 and since then there has been a considerable amount of argument about the idea.

He got the legislature in June 2015 to approve the VAT on the condition that a special committee signed off on the idea in the fall. The committee ultimately approved the VAT and Puerto Rico was set to take the final steps towards its introduction this spring.

However, earlier this year, under pressure from leaders in his own party, García Padilla agreed to delay the increase in business-to-business taxes to June 1.

The House measure stopping the increase and the start of VAT will now be considered by the Senate.

The governor has threatened to veto any vote by the legislature stopping the VAT. However, the House and Senate could override the veto with two-thirds supermajority votes.

Puerto Rico Treasury Secretary Juan Zaragoza G-mez said that most of the components of the VAT are already in place. He has said that a VAT tax would be a good way of reducing tax avoidance in Puerto Rico.

The Senate voted 16 in favor and nine against a measure to aid PRASA borrowing for its capital needs. The legislation would set up the Corporation for the Revitalization of the Aqueduct and Sewer Authority, which would issue bonds.

While PRASA had sought the measure to improve its chances of selling bonds, PRASA President Alberto Lázaro Castro complained about the bill the Senate passed.

"The version approved today leaves us crippled in our efforts to turn the agency into a sustainable PRASA," he said.

The Senate-approved bill would allow the securitization authority to sell one bond issue to cover no more than three years of the capital improvement plan.

Lázaro Castro said if the Senate had approved the version of the bill the House already passed, there would not be the possibility of having to increase water and sewer rates in coming years.

Representatives of the Senate and the House will now have to sit in conference committee to reconcile the two versions of the bill.

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