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Federal Affairs, Taxes, Retail, Manufacturing

U.S. Senators Intent On Addressing P.R. Excise Tax Issue

Exemption Granted Medalla Seen As Unfair Barrier To Trade


January 30, 2003
Copyright © 2003 CARIBBEAN BUSINESS. All Rights Reserved.

The 78% increase in excise taxes that the Calderon administration imposed last year on beer produced by major U.S. manufacturers--and which effectively exempted the island’s leading local brand, Medalla--will come under close congressional scrutiny in the months ahead, according to several U.S. senators.

Two weeks ago, the issue provoked an effort by U.S. Sen. Ben Nighthorse Campbell (R-Colo.) to freeze the transfer to the commonwealth government of $13.25 of the $13.50 per-proof-gallon tax on rum produced in Puerto Rico. The transfer, known as the rum tax rebate, amounts to an estimated $360 million each year.

"Sen. Campbell proposed eliminating Puerto Rico’s rum tax rebate until the federal Department of the Treasury determines that the excise tax increase imposed locally on beer isn’t discriminatory against beers from the mainland," Resident Commissioner Anibal Acevedo Vila told CARIBBEAN BUSINESS. "This proposal was developed without first debating the subject and we found out about it when the Omnibus Bill was presented."

In his proposal, Campbell attacked the new Puerto Rico excise tax regime as putting "undue and unfair burdens on the island’s consumers and on U.S. beer producers."

Campbell agreed to withdraw his proposal from the Omnibus Bill when Senate Finance Committee Chairman Charles Grassley (R-Iowa) pointed out that an appropriations bill is an inappropriate forum to address a tax issue. His decision was not a result of lobbying by the government of Puerto Rico, as earlier reported locally. In fact, according to the Congressional Record, Grassley told Campbell on the Senate floor that he and the Finance Committee would work with Campbell on the issue in the months ahead.

"The Omnibus Appropriations Bill is an inappropriate forum to address this issue. But we realize the importance of ongoing negotiation," said Grassley on the Senate floor. "I commit myself to working together with those concerned to address this issue through the Finance Committee, which is the appropriate jurisdiction for resolution of this matter."

Campbell, who represents Colorado, the home of beer manufacturing giant Coors, has already enlisted support on the excise tax issue from Senate Appropriations Committee Chairman Ted Stevens (R-Alaska), Sen. Christopher Bond (R-Mo.) and Sen. James Talent (R-Mo.). The state of Missouri is home to the Anheuser-Busch beer manufacturing empire, which brews Budweiser.

Congress was already likely to take up the rum tax rebate issue this year, since the current amount of the transfer--$13.25 per proof gallon--expires at the end of the calendar year. Unless action is taken, it is to be reduced to $10.25 per proof gallon. In fiscal year 2001, the Puerto Rico government received $334 million from the rum tax rebate.

So far, Calderon administration officials haven’t given any indication that they will back down on the excise tax issue. "This government doesn’t work on the basis of pressure, and much less pressure of that nature," said Gov. Sila Calderon.

"I told Coors executives that by supporting the elimination of the rebate, they would be giving a big blow to our economy and…they could be seen as enemies of Puerto Rico," said Acevedo Vila. "The elimination of the rebate would only bring about a lose-lose situation for them and for Puerto Rico."

"This issue is a horribly excessive tax that needs to be discussed immediately," insisted Campbell, chairman of the Senate’s Treasury & General Government Appropriations Subcommittee, in his discussion with Grassley on the Senate floor. "Resolving this issue before to the end of the year is very important."

According to Puerto Rico Treasury Department statistics, during the first three months of fiscal year 2003 (July-September 2002), Treasury received $58.8 million as a result of the new excise taxes on beer. That’s $15.6 million more than the $43.2 million received during the same period in fiscal 2002.

This Caribbean Business article appears courtesy of Casiano Communications.
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