Record Puerto Rico Treasury revenue expected to drop
Secretary Parés points out it exceeded fiscal board projections
SAN JUAN — While the Puerto Rico Treasury Department reported record-breaking tax revenue for fiscal year 2019, it is projecting a drop during current fiscal 2020 due to the implementation of enacted tax cuts
Puerto Rico Treasury Secretary Francisco Parés Alicea said that preliminary general fund net revenue totaled $11.38 billion for fiscal 2019, which ended June 30, an increase of 22 percent, or $2.06 billion over the $9.31 billion collected during fiscal 2018. The revenue rise was fueled mostly by greater corporate and individual income tax returns as well as by sales and use tax (IVU by its Spanish acronym) collections.
The 2019 figure was $1.14 billion, or 10 percent, higher than agency estimates, Parés said, noting that this was the third consecutive fiscal year Treasury exceeded revenue projections.
“This is a new record number for revenue collections,” the Treasury chief said in a statement.
Parés attributed the seemingly booming revenue to a “combination of several factors,” mainly economic activity generated by recovery and reconstruction efforts in the aftermath of hurricanes Irma and María in 2017. He also credited revenue growth to the New Tax Model, which came into effect in January, and to the “successful implementation” since December of the second phase of the Internal Revenue Unified System (SURI by its Spanish acronym), as well as the Taxpayer Rehabilitation Program.
However, Parés said his agency was projecting that revenue for fiscal 2020, which began July 1, will reach $10.41 billion, 8.5 percent less when compared with fiscal 2019. The Treasury chief attributed the expected drop to the planned cut for 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.
The official said his agency expects to again meet estimates for the current fiscal year, noting that “the behavior of revenues in July, the first month of the fiscal year, was positive with respect to projections,” adding that tax compliance should continue to improve with the implementation in December of the third phase of the SURI system, which includes individual and corporate income taxes.
The main driver for last fiscal year’s record-breaking tax revenue was a $716.1 million, or 40.3 percent, increase in corporate income tax collections. Revenue in this category rose from $1.78 billion in 2018 to $2.49 billion in 2019, Parés said. Individual income tax collection rose by $264.2 million, or 13.5 percent, reflecting $2.22 billion in revenue compared with $1.96 billion in fiscal 2018.
Revenue from Act 154, which imposes a 4 percent excise tax paid by stateside companies on their purchases from Puerto Rico-based subsidiaries, increased by 8.8 percent, or $168.3 million, between fiscal years 2018 and 2019. Revenue in this category, which constitute almost one-fifth of the general fund revenue, rose from $1.68 billion in fiscal 2018 to $1.83 billion in fiscal 2019.
IVU revenue totaled $2.81 billion in fiscal 2019, a year-over-year increase of $283 million, or 11 percent. Some $2.3 billion in IVU revenue went into the commonwealth general fund, for a $653 million, or 39.7 percent, increase. IVU revenue to the general fund climbed from $1.65 billion in 2018 to $2.3 billion in 2019.
Parés said another $413 million in IVU revenue was allotted to the Puerto Rico Sales Tax Financing Corp. (Cofina by its Spanish acronym) Adjustment Plan, which was approved in February by U.S. District Court Judge Laura Taylor Swain, who oversees the island’s bankruptcy-like process.
Moreover, motor vehicle excise tax revenue increased 27.5 percent, to $519.1 million in fiscal 2019, said the Treasury chief, who called this “the highest revenue level in 13 years.”
Parés stressed that Treasury’s revenue exceeded three projections by the island’s Financial Oversight & Management Board during the past year. The board had projected $8.5 billion in revenue at the beginning of fiscal 2019, in July last year. The fiscal panel again revised the amount to $10.2 billion on Oct. 23, and to $10.71 billion in the last fiscal plan it certified May 9.