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Chamber Of Commerce Weighs In On Government’s Proposed Fiscal Moves

Supports 4x4 tax increase, but suggests modifying other measures


March 15, 2002
Copyright © 2002 CARIBBEAN BUSINESS. All Rights Reserved.

The Puerto Rico Chamber of Commerce (PRCC) has looked at the Calderon Administration’s latest round of proposals to raise revenue, and it doesn’t like much of what it sees.

Among the six measures the administration proposes as part of its plans to raise government revenue and avoid a budget deficit in fiscal year (FY) 2003, only the measure proposing parity of taxes between light truck vehicles (including popular sport utility vehicles) and traditional passenger vehicles receives the PRCC’s unqualified support.

"We’ve taken a look at the government’s set of proposals, taking into account the need for additional resources and the temporary nature of the current downturn, as well as the need to keep Puerto Rico competitive," PRCC President Jose Joaquin Villamil told CARIBBEAN BUSINESS.

In her State of the Commonwealth address last month, Gov. Calderon proposed a consolidated Government of Puerto Rico FY 2003 budget of $21.8 billion—6.3% higher than the current fiscal year. General Fund spending alone would be raised 5%, to $7.8 billion.

Villamil emphasized that with Puerto Rico’s economic growth for FY 2003 and FY 2004 projected at upwards of 3%, the government’s temporary budget shortfall should be met mostly with temporary revenue-raising measures.

The PRCC said that in addition to temporary measures, he’s convinced that the Commonwealth should also make a greater effort to rein in spending, particularly in the area of subsidies.

"It’s time for the government to take a hard look at subsidy levels which are frankly unjustifiable, such as the current level of sugar subsidies and the disproportionate subsidy of the University of Puerto Rico," Villamil said.

As far as the Calderon Administration’s current revenue raising proposals, he said the PRCC totally opposes the idea of allowing a three-month window in which Individual Retirement Account (IRA) holders would be allowed to withdraw up to $20,000 at a lower 10% tax rate.

"It’s bad public policy," Villamil stated. "Promoting savings and investment is an essential component of a sound tax system, a component that shouldn’t be violated with a proposal like that one." He said an alternative IRA-related revenue raising option for the government could be the ROTH IRA accounts, which tax account holders up front and are common stateside.

As to the proposed hike on liquor taxes, Villamil indicated that the PRCC views the measure as it stands as being regressive in nature (meaning that it disproportionately impacts middle-to-lower income earners, another violation, he said, of sound tax principles). Further, Villamil said that the proposal is based on market misconceptions and would not generate the revenue anticipated. Any increase should preferably be phased in, he added.

Villamil said that the PRCC’s position on the proposed cigarette tax increase is that it should not be approved without a thorough analysis of its possible impact on the government’s court settlement with the major cigarette producing companies.

Puerto Rico, along with every state of the Union, stands to receive a certain amount as a result of the court settlement in the long, hard-fought class-action suit against tobacco companies. It is still unclear how Puerto Rico’s award could be affected if the local government increases local excise taxes on cigarettes.

With regard to the administration’s proposal to delay implementation of across-the-board tax rate reductions for two years, including the repeal of the marriage penalty tax, Villamil said that due primarily to the temporary nature of the economic downturn, the measure should only be delayed one year.

He said the PRCC also opposes the administration’s proposed 3% retention on professional service contracts, which is seen as having a huge detrimental impact on the cash flow of the island’s services sector, particularly among accountants, lawyers, engineers, and computer support specialists.

This Caribbean Business article appears courtesy of Casiano Communications.
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