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Puerto Rico Treasury: Alternative to sales tax should be considered

By on October 5, 2017

SAN JUAN — Puerto Rico should take a hard look at its current tax system to eliminate the Sales & Use Tax (IVU by its Spanish acronym) and implement another tax system that could allocate resources to the treasury even amid a national disaster, Treasury Secretary Raúl Maldonado told Caribbean Business.

The current tributary system is based on a consumption tax that’s dependent on business operation, communications and the electric service. “The problem is I don’t have that. I have no business. I have no communication. So we must rethink our tax system if we want to recover. Once the country stabilizes, this should be a priority,” he said on Wednesday.

It took the government more than four years to bring the consumption tax system to its current level, “but now we are starting at zero,” he said in an interview that was partially in English and partially in Spanish.

P.R. Treasury Secretary Raúl Maldonado. (CB Photo)

Are you contemplating a scenario where there is no IVU?, he was asked. “I think everything is on the table […] You have to take a serious look at the options to be able to establish a fast and efficient system under the current circumstances,” he said.

Maldonado did not rule out the idea of ​​having a “flat tax” applied at the ports. “It’s an attractive alternative because we limit the number of taxpayers and we have more control,” he said.

The government has enough money to comply with the Oct. 15 and 30 payrolls. However, they’re currently not receiving collections since telecommunications systems are down and a large number of businesses are not operating.

“Along with that, we are disbursing multimillion-dollar amounts for aid in order to buy emergency items at this time […] If we count that, out budget says that on Oct. 31 we will reach critical levels and won’t be able to comply with the government’s critical obligations,” Maldonado warned.

The Treasury secretary also pointed out that of the $1.8 billion available, the government has spent between $700 million and $800 million on hurricane disbursement, plus payroll.

Although the Federal Emergency Management Agency (FEMA) also pays for aid, those funds are for purchasing food or diesel fuel. There are assistance programs like the ones provided by the Housing Department that must be requested separately.

“That is why we need an immediate cash infusion from Congress, because everything else has to be requested separately,” Maldonado said.

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The Treasury secretary added that even if businesses opened right now, the government will not be able to recover its losses.

“Many businesses will take months to recover. Many areas will take years to recover, so now the budget changes […] Now we must work with another reality where business owners will take time to reopen, of areas without purchasing power. And the economy will take some time to reactivate,” he said.

When asked about the hurricane’s impact on the island’s bankruptcy process and whether the debt will be restructured, Maldonado replied that in a common bankruptcy process “where a debtor like us suffers an economic disaster, the rules are different.”

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