Saying it “is the best option” to solve the government’s fiscal problems, Gov. Alejandro García-Padilla re-introduced Tuesday a proposal to establish a value added tax system he said would generate more than $2.5 billion in net revenue for the cash-strapped administration.
In a meeting with members of the Puerto Rican media, García-Padilla appealed to lawmakers and the general population to support the proposal, which he said is the best option over the alternatives of increasing the sales and use tax or going back to applying an excise tax on goods and services at the points of entry.
“There are those who favor a return to the general excise tax structure, but if I were to support that, I would have to propose one at 25 percent, to achieve the $1.5 billion the government needs to the new expenses included in next year’s budget,” said García-Padilla during the exchange at La Fortaleza.
“Others propose increasing the sales and use tax, but that would call for imposing a 12 percent tax, plus 1.5 percent for municipalities, without the ability to offer taxpayer relief and help for the elderly. Both the excise tax and the sales and use tax have an inflationary effect,” he said.
García-Padilla said following a lengthy meeting with lawmakers on Monday, they agreed to support the implementation of a value-added tax, although they did not establish a rate.
Next year’s expenses are projected at $10.1 billion, up from the current $9.5 billion budget. Next fiscal year’s recurring income has been estimated at $8.6 billion, which leaves the $1.5 billion gap the governor says would be covered by the value added tax included in the proposed tax reform.
“At a time when the government has unavoidable expenses of $10.1 billion, there are those nickel and diming the situation,” he said.
With a 13.25 percent value added tax, the government would only have to cut $300 million in expenses, he said.
“The thing is that we’re addressing a problem that has been going on for years. It’s a complex problem and those never have simple solutions,” he said. “They merit complex solutions to solve them once and for all. Kicking the can so that whoever comes behind picks it up is what prior administrations have done.”
“This is the call I am making to the people — we don’t want to implement $1.5 billion in cuts, but if we don’t want to cut, we have to increase revenue,” he said, noting the clock is ticking and the government must identify a source of funding before the start of Fiscal 2016.
If the government is unable to secure a repayment source, it will not be able to access tax revenue anticipation notes, known as TRANS, to finance the first few months after the new fiscal year starts July 1.
Without that funding source, he warned the government could close. Furthermore, García-Padilla said not paying the government’s debt is not an option.
“We have to make these decisions now anyway, because we can’t negotiate with bondholders with a closed government. This is a serious issue,” he said.