Gov’t mulling at least 6 hybrid tax structure alternatives

Written by  //  May 14, 2015  //  Government  //  No comments

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Lawmakers and executive branch members, including Gov. Alejandro García-Padilla are huddled at the Puerto Rico Convention Center to discuss solutions to the island's cash crunch. (Credit: © Mauricio Pascual)

Lawmakers and executive branch members, including Gov. Alejandro García-Padilla are huddled at the Puerto Rico Convention Center to discuss solutions to the island’s cash crunch. (Credit: © Mauricio Pascual)

Lawmakers and members of the executive branch gathered at the Puerto Rico Convention Center today are said to be considering six different scenarios that would combine a hybrid structure of a sales and use tax and a general excise tax to shore up the government’s finances.

News is my Business learned the following alternatives are being analyzed:

  1. A 7 percent sales and use tax and a 5 percent excise tax both with exemptions that would generate $670.3 million in new revenue, leaving a deficit of $912.6 million;
  2. A 9.5 percent sales and use tax and an 8 percent excise tax both with exemptions that would shore up $1.63 billion, generating a budget surplus of $54.2 million;
  3. A 7 percent sales and use tax without exemptions and a 5 percent excise tax with exemptions that would generate $980 million in additional revenue, leaving a deficit of $602.9 million;
  4. A 7 percent sales and use tax with exemptions and a 5 percent excise tax without exemptions that would generate $1.2 billion in additional revenue, leaving a deficit of $308.7 million;
  5. A 7 percent sales and use tax and a 5 percent excise tax both without exemptions that would generate $1.5 billion in new revenue, generating a surplus of less than $1 million.
  6. An 8 percent sales and use tax and a 6 percent excise tax, both with exemptions, that would generate a little over $1 billion in new revenue, leaving a deficit of $552.7 million.

All of the scenarios, which were reportedly presented to La Fortaleza on Wednesday, suppose a 60 percent collection rate for both taxes. The exemptions refer to all of those currently in effect under the sales and use tax structure, and those that were in force in 2005 under the old excise tax system.

The additional revenues are determined by subtracting from the new collections under the scenario being considered the $1.2 billion the sales and use tax raised in fiscal year 2014 (net of payments to municipalities, or 1.5 percent).

To determine the deficit or surplus, the amount of new revenue is subtracted from the collection estimate of $1.5 billion needed to cover the government’s budget expenses. The result is the amount for which the government would have to cut spending to balance the budget.

The source noted that revenues generated by the general excise tax are substantially less for each percentage point in comparison to the sales and use tax. This is partly because of a smaller collection base due of its exemptions. If the same exemptions under the sales and use tax were applied to the general excise tax, revenue would be higher.

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