Puerto Rico's House of Representatives passed a bill that would raise the junk-rated island's sales tax, a move that may help it sell debt and ease a cash crunch.
House members voted 26 to 24 to boost the levy to 11.5 percent from 7 percent through March, after which it will transition to a value-added tax. Lawmakers expect the measure will increase revenue and balance a proposed $9.8 billion budget for fiscal 2016, which begins July 1. The bill now heads to the Senate, which has a session scheduled for Friday.
The bill "will take us another step toward taking care of the budget," Rafael "Tatito" Hernandez, who chairs the House Treasury Committee, said during debate.
The House had rejected a previous tax-overhaul plan from Governor Alejandro Garcia Padilla last month. Time is running out for the island. Lawmakers need to pass a balanced budget by June 30 and the commonwealth faces a $630 million payment to bondholders July 1.
The Government Development Bank, which lends to Puerto Rico and its municipalities, will deplete its liquidity by Sept. 30 unless the island completes a planned sale of $2.9 billion of debt backed by oil taxes, according to the commonwealth's latest quarterly filing. The bank's net liquidity dropped to $1.02 billion as of April 30, from $2 billion in October.
Increasing revenue would attract investors to the planned oil-tax bond deal, according to the GDB. Proceeds would repay money the commonwealth's highways authority owes the bank and help avert a partial government shutdown.
Puerto Rico debt has rallied since the governor and lawmakers of his ruling party agreed on the framework of the tax proposal last week. General obligations maturing in July 2035 traded Thursday at an average price of 82.53 cents on the dollar, the highest since March 23, according to data compiled by Bloomberg. That's up from 79.13 cents May 13.
Lawmakers are trying to revive an economy that has struggled to grow since 2006. The island's elevated jobless rate -- it's twice the national average -- has contributed to a 7 percent decline in the population in the past decade.
"This law will cause an even greater exodus of Puerto Ricans," Jenniffer Gonzalez, speaker for the House minority, said during debate.
