Puerto Rico's government moved closer to delaying an increase in the business-to-business consumption tax amid growing political opposition.
With politicians from the major parties and the Puerto Rico Chamber of Commerce expressing opposition to an April 1 increase in the tax to 10.5% from 4%, a spokesman said Governor Alejandro García Padilla may exercise his option for a 60 day delay. Secretary of the Treasury Juan Zaragoza is looking into the possibility, the governor's spokesman said.
Puerto Rico introduced a 4% business-to-business consumption tax on Oct. 1, and planned the increase as part of an effort to control tax evasion.
However, a wide range of prominent politicians over the past week called for a delay or elimination of this increase, which the chamber of commerce said would hurt an already weak economy. Even David Bernier, the candidate of García Padilla's party for governor in November's elections and an ally of the governor, joined in.
The El Vocero news site has alternately reported the tax increase would bring an extra $25 million or $50 million a month. The government is already late on paying tax refunds and supplier bills, and says it won't be able to make a May 1 bond payment.
The business-to-business tax was to be part of a value added tax to replace the current sales tax.
"I am not sure what the motivation is behind this delay, but I think that any tax increase, at this point, could harm economic expansion by putting a burden on fewer and fewer businesses," said Evercore Wealth Management director of municipal research Howard Cure. "I also don't know if the governor is withholding this tax as a bargaining chip with the federal government and bond holders in exchange for better terms that will ultimately need to be negotiated in a debt restructuring and federal oversight board."
There has been some talk in the Puerto Rico legislature of substituting a tax on imported goods for the business-to-business tax.
In other Puerto Rico news, García Padilla met with U.S. Rep. Rob Bishop, R-Utah, in the governor's executive offices in Puerto Rico Friday morning. Bishop is chairman of the Committee of Natural Resources in the House of Representatives, one of the principal committees that oversee Puerto Rico. Bishop talked with the governor about the financial difficulties facing Puerto Rico.
El Vocero's web site reported Friday that U.S. Rep. James Sensenbrenner (R-Wisc.) and an aide to House of Representatives Speaker Paul Ryan (R-Wisc.) are expected to visit the governor in Puerto Rico in the next few days.
