Private sector balks at Caguas tax hike, town defends
Private sector representatives got together Thursday to blast the Caguas municipal government for what they called an “excessive and discriminatory” tax increase that took effect July 1 and affects businesses making more than $3 million in revenue.
More than 70 companies were represented in the meeting that took place in Caguas, headed by leaders of the Private Sector Coalition. The gathering was the result of what they said were failed attempts to have the tax revoked before it became a reality.
“As the private sector, we are united and organized, because cannot take another tax. In recent years, we’ve been subject to increase after increase in taxes, which has led to the bankruptcy of hundreds of businesses and more impoverished Puerto Ricans,” said Lymaris Otero, executive director of the Retail Business Association .
“It is not fair to transfer to the private sector the fiscal deficit and the lack of funds in the municipalities because of the central government, and that we have to pay more to defray urban infrastructure expenses, which are the government’s responsibility and for which citizens and companies already pay taxes,” said Otero.
Effective July 1, the Caguas municipal government implemented a temporary “Municipal Business Contribution,” applicable to companies that report annual gross revenues of $3 million or more, adding .35 percent to the .50 percent they paid. The tax increase will be in effect through June 30, 2021.
Caguas municipal executive Víctor Coreano confirmed the town decided to increase the tax in response to the central government’s cutback of $350 million earmarked for towns as part of its budget. As a result, Caguas will receive $8.5 million less, which coupled with the $26 million frozen at the Government Development Bank, has put the town in a crunch, he said.
“We implemented the tax, but at the same time, drafted a municipal budget that is $24.5 million less than last fiscal year. We’re also implementing expenditure controls and caps on payroll to 42 percent of the town’s real income of $91 million,” he said.
The new tax will be applicable to nearly 200 businesses in Caguas, said Zamia Baerga, the town’s economic development secretary.
“We expect to generate $11 million annually from the increased tax. The municipal governments are responsible for moving the town’s economy. If we don’t have security measures, good roads, and adequate infrastructure, businesses won’t be viable and they won’t come to Caguas,” Baerga said. “We have to be able to address their needs.”
The temporary tax could be repealed if the town is able to recoup some of the funds it is missing, Coreano said.
The town is evaluating whether it will follow in the footsteps of the San Juan municipal government in suing the GDB for the funds it is holding up, Coreano confirmed.
Meanwhile, Puerto Rico Chamber of Commerce President Alicia Lamboy-Mombille, said although the private sector is aware of the town’s upkeep needs, “improving municipal revenue cannot be a selective act that threatens the stability of a reduced group of companies that carry the weight of retaining jobs created, paying benefits and make timely payments of municipal taxes and other obligations.”
Private sector representatives made a public appeal to the Financial Oversight and Management Board for Puerto Rico and lawmakers to address the tax hike and its effects.
“Our requests have not been answered with the speed and importance it deserves, and in all likelihood we will have to go to court,” said Manuel Reyes, vice president of the Puerto Rico Chamber of Food Marketing, Industry and Distribution (known as MIDA by its Spanish acronym.)
Towns like San Juan, Caguas, San Lorenzo, Arecibo and Ponce have announced increases to business taxes that nearly double the rate, he said.
In March, the Municipality of San Juan increased the municipal tax rate applicable to business that generate more than $300,000, from .20 percent to .50 percent, a 150 percent increase. Meanwhile, Ponce established a 2.00 percent increase in property tax rates.
Ramón Leal, president of the Puerto Rico Restaurants Association, urged mayors to refrain from “transferring the net effect of their revenue losses to businesses in a discriminatory and selective manner.”
“As businesses, we cannot be on edge about the possibility that at any time we will be informed about a new tax or an increase,” Leal said “This is fatal to our businesses, jobs and thus our economic recovery.