Puerto Rico Economy 2015: Gov. Alejandro Garcia Padilla Signs Tax Increase; More Tax Hikes Coming
Puerto Rico Gov. Alejandro Garcia Padilla signed a legislation raising the commonwealth's sales tax increase to double-digit figures.
Scheduled to go in effect on July 1, Puerto Rico's sales tax will increase from 7 percent to 11.5 percent. The bill also will increase taxes on professional services by 4 percent, but it will be implemented later this year. With the new tax plans, Puerto Rico is projected to gain approximately $1.2 billion in revenue.
"This consensus measure mitigates the difficult fiscal situation facing the Puerto Rico government," said Victor Suarez, the chief of staff for Garcia Padilla. "Now we must complete the presentation of a balanced budget and the implementation of austerity measures to secure services and essential projects for our development."
The projected revenue may help the island conduct business with creditors and hedge funds. Without financing, Puerto Rico reportedly risked bankruptcy by the end of September.
In addition to the new tax plans, Puerto Rico's lawmakers are proposing a $9.8 billion budget with $674 million in cuts.
As Latin Post reported, Garcia Padilla previously proposed a 16 percent value-added tax, which was detailed in a 1,435-page legislation. His proposal, however, required public hearings by Puerto Rico's legislators. The tax proposal came after Garcia Padilla met with business owners and private sector groups about the value-added tax for the island's economic recession.
According to Bloomberg, Puerto Rico's economy has not grown since 2006, and the governor's proposal would have accrued nearly $1.5 billion in new revenue for the territory. The value-added tax revenue would also help repay $15.2 billion of sales-tax debt.
Meanwhile, Garcia Padilla announced his support of privatizing electricity production as an effort to restructure the commonwealth's public power company. If privatization efforts progress, the governor said he hopes there would be no layoffs.
"These are measures that have never been ruled out," he said, via the Associated Press. "The authority's transformation has to be a profound one."
The governor, however, still opposes complete privatization of Puerto Rico's power company -- Electric Energy Authority.
According to the U.S. Labor Department's Bureau of Labor Statistics, Puerto Rico's unemployment rate is 12.2 percent as of April this year.
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