Friday, December 6, 2019

Despite governance crisis in July, Puerto Rico tax revenue exceeds projections

By on September 17, 2019

Puerto Rico Treasury Department headquarters in San Juan (CB file)

Treasury chief attributes record collection to corporate activity

SAN JUAN — The government crisis that led to the resignation of former Gov. Ricardo Rosselló in July did not affect the Puerto Rico Treasury Department’s tax revenue that month, which exceeded estimates and reached “historical” levels, Treasury Secretary Francisco Parés announced Tuesday.

Preliminary general fund net income during July, the first month of fiscal 2020, totaled $1.05 billion, some $305.5 million, or 41.2 percent, more than the same month last year, Parés said in a release, noting that the figure exceeded estimates by $159.9 million.

The Treasury chief attributed the month’s record-breaking revenue mostly to income tax collections resulting from “economic activity by corporations.” Corporations on the island paid $255.7 million in income taxes, nearly three times the $89.5 million paid the same month last year. July’s corporate income tax revenue exceeded projections by $101.9 million, or 66.3 percent. Parés simply said it was “attributed to a particular business transaction of a company that resulted in payment of taxes.”

Another big revenue driver was Act 154’s 4-percent excise tax, paid by stateside companies on their purchases from Puerto Rico-based subsidiaries, the official said. The hugely successful tax has become the focus of controversy after U.S. Treasury Secretary Steven Mnuchin reportedly told Gov. Wanda Vázquez’s administration to prepare for the eventual elimination of the federal tax credit that allows stateside manufacturers on the island to offset the impact of the excise tax. He said the tax does not align with President Trump’s corporate tax reform to bring business back to the United States. For tax purposes, Puerto Rico is considered a foreign jurisdiction.

The Act 154 excise tax generated $383.4 million in July, a 53 percent increase compared with the $250.1 million collected the same month last year. The July figure is $35.9 million above estimates, Parés added. Act 154 collections rose 8.8 percent, or $168.3 million, between fiscal years 2018 and 2019. Revenue in this category, which constitutes almost one-fifth of general fund revenue, rose from $1.68 billion in fiscal 2018 to $1.83 billion in fiscal 2019.

Individual income tax collections totaled $143.3 million in July, $13 million, or 10 percent, more than in July 2018. Revenue in this category exceeded estimates by nearly $8 million, Parés said.

However, Treasury also registered declines in other major revenue categories, including the sales and use tax (IVU by its Spanish initials). IVU collections totaled $91.6 million in July, a drop of $10.8 million, or 11 percent, compared with July last year, when Treasury received $102.4 million. The July figure was nearly $9 million below estimates.

IVU collections for July totaled $179.3 million, Parés said without providing the year-ago total. He said the method used to register IVU payments was modified in July due to the Puerto Rico Sales Tax Financing Corp. (Cofina by its Spanish acronym) adjustment plan resulting from an agreement with bondholders in February.

“Under the new methodology, [IVU] payments received will be registered at the moment the tax return is filed,” the Treasury chief said. “For this reason, some payments made in the month of July will be reflected in the month of August starting on the 20th, the deadline for filing the monthly IVU return.”

Motor vehicle excise tax collections totaled $34.2 million in July, a $9.7 million drop compared with last year, but $10.5 million above estimates. Excise tax collections on alcoholic beverages reached $20.7 million, a $1.7 million decline versus July 2018, but $10.5 million more than estimated.

Meanwhile, non-resident withholdings fell 30 percent, from $51 million in July 2018 to $35.7 million in July this year. Estimates in this category were off by $17.5 million.

Parés said last month that projected tax revenue for fiscal year 2020 is expected to drop by nearly 9 percent due to the planned cut of the IVU on prepared food from the current 11.5 percent to 7 percent, which starts Oct. 1, as well as to enacted income tax cuts, and the earned-income tax credit.

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