The Puerto Rico legislature has voted to postpone a cut in the island's sales tax rate to 6.5% from 7%.
The reduction was set to occur on Dec. 1 but is now expected to occur in February.

The reduction would not have affected the revenues of the commonwealth government nor the income of the Puerto Rico Sales Tax Financing Corporation (COFINA) that gathers money to pay back sales tax-backed bonds. That is because the first 5.5% of the sales tax is used first for COFINA and, only after its needs are satisfied, then for the government's general fund.

The cut would have reduced the remaining 1.5% portion of the sales tax given to municipalities to 1%.

Gov. Alejandro García Padilla proposed extending the range of services that the sales tax covered in the spring. At that point it argued that with the tax covering more transactions and the rate going down, the municipalities' net revenue would remain even. Since then the legislature reduced the span of services that the sales tax expansion would cover.

García Padilla proposed the sales tax cut as a means to spur the economy, which has been weakening for about a year.

The sales tax rates law that passed in June stated that the rate reduction would take place in December but also that the legislature could postpone the reduction until February. The reduction is to better understand how much money the municipalities will get after the sales tax cut, a Treasury spokesperson said.

Sales tax revenues were up by 9.7% to Oct. 2013 from Oct. 2012, about a third as great an increase as the government had expected.
 

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