Este informe no está disponible en español.


Silva’s plan alters proposed government budget

House Treasury & Financial Affairs chairman presents measures to alleviate tax burden from executive branch’s fiscal 2006 budget


June 10, 2005
Copyright © 2005 CARIBBEAN BUSINESS. All Rights Reserved.

The Puerto Rico government budget presented by Gov. Aníbal Acevedo Vilá includes $830 million in additional spending. With this figure, the fiscal 2006 budget would be $9.68 billion, compared with $8.85 billion for fiscal 2005, making it the largest budget increase in the past 25 fiscal years. The increase also translates into tax and service-rate increases.

If the budget proposal is approved without changes, Puerto Rico residents and consumers will feel the impact. As a result, Rep. Antonio Silva (NPP-Bayamón), chairman of the House Treasury & Financial Affairs Committee, prepared an alternative, which he calls the Silva Plan. The new plan presents options that would limit the executive branch’s proposed tax increases.

A study prepared by Silva’s advisers shows the governor’s budget proposal includes $3.48 billion in tax increases between fiscal 2006 and 2009. The first increase would be for $1.28 billion through the elimination of exemptions to the excise tax. The banking sector would have to pay $360 million in extra taxes. Both measures were presented as temporary two-year taxes, a period already questioned by reports stating the bank tax would be retroactive and cover three years. Silva’s study also points out that the bank tax would translate into increased consumer costs.

The proposed 20% tax rate on capital gains, a 100% increase over the present 10% rate, would be $120 million in extra tax revenue. Another $120 million in extra taxes would be collected through increased <I>marbetes</I> (registration fees) on luxury vehicles worth $32,435 or more. The biggest impact on consumers would be through the permanent elimination of the Puerto Rico Aqueduct & Sewer Authority’s $400 million annual government subsidy, which Silva’s study says would mean consumers would pay $1.6 billion in extra charges for water service. Not only would they be paying more, but the sudden elimination of the subsidy also could compromise services as the company makes the necessary budgetary adjustments. The government budget also could result in an 18% increase in food costs.

Adding fuel to the fire

The Silva plan also points out that these tax and service-rate increases would be added to the $1.4 billion in new taxes passed by Gov. Calderón for fiscal 2001 through fiscal 2005. Those increases included $423 million from taxes on alcoholic beverages, cigarettes, and tobacco, $210 million from luxury vehicles and sport utility vehicles, as well as $18 million from inventories of vehicles, beverages, cigarettes, and tobacco.

The additional taxes imposed by the Calderón administration also included $360 million from the reinstatement of the "marriage penalty" tax and $330 million from the elimination of tax cuts granted by the Rosselló administration. Another $60 million in taxes were added by imposing an obligatory 3% and 7% retention on services rendered by corporations and societies of services and individuals, and another $30 million from a 10% tax on casino jackpots.

Of the total $1.68 billion in taxes, contributions, water-rate and vehicle-registration increases, and savings proposed by the government, 78%, or $1.3 billion, would fall on taxpayers. Only 22%, or $370 million, would be gained through payroll cuts or real government savings. "This means [we will be paying] more taxes, more excise taxes, and more for services to sustain the same pattern of spending we had over the past four years," Silva commented.

Silva’s proposal

The Silva Plan presents recommendations for the 2006 budget that aren’t a menace to consumers’ pockets. The plan supports the elimination of excise-tax exemptions, except for food and medicines, which Silva believes should remain untaxed. This would represent $142 million in additional government revenue.

Silva’s plan presents a 1% tax on the banking sector rather than the 4% proposed by Acevedo Vilá. Instead of taxing interest income, Silva would allow banks to deduct their expenses, and he wouldn’t implement it retroactively. Under Silva’s plan, banks would pay $45 million in new taxes.

"I met with the president of a local foreign bank, who was telling me he didn’t know how to explain the tax to…his headquarters because he anticipated they would question how this kind of tax is possible within a U.S. federal territory," Silva commented. Echoing similar concerns, he said: "If Puerto Rico continues to change the rules in the middle of the game, investors won’t come to Puerto Rico." Silva also would keep the capital-gains tax at 10% rather than the executive branch’s proposed 20%. Silva stated his proposal would translate into $30 million for the government, although he believes it could be much more.

The plan also presents an altered version of the proposed tax on luxury-vehicle registrations. "[Acevedo Vilá’s proposal] would mean some cars would be paying $5,000 to register, which is confiscatory," Silva pointed out. His proposal would increase registration fees for all vehicles, including trucks, adding $250 million to the budget.

These measures, in addition to the $8.775 billion the Treasury secretary estimates as tax revenue in fiscal 2006, adds to $9.242 billion, which is the alternate budget recommended by Silva. "This is substantially more than the current budget, but less than the governor proposed for approval," Silva stated.

Silva states that certain terms within his plan are open for negotiation. He explained he chose to use the same instruments, or tax categories, as the governor to facilitate the approval process.

Silva adds the smaller incidental resolutions in the budget already should be going through the ratification process so everything isn’t left for the last minute. If the budget isn’t approved by July 1, the current $8.85 billion budget would go into effect once again.

This Caribbean Business article appears courtesy of Casiano Communications.
For further information, please contact:



Self-Determination Legislation | Puerto Rico Herald Home
Newsstand | Puerto Rico | U.S. Government | Archives
Search | Mailing List | Contact Us | Feedback