Puerto Rico Balances Budget by Taking More from Big Business

EspañolOn early Tuesday morning, the Puerto Rico Congress approved a US$9.5 billion budget, the first one in 20 years without a deficit. The balanced budget was achieved thanks to a controversial tax called the “national patent,” expected to bring the government some $600 million in extra revenue.

The national patent is a gross income tax levied on companies with a high volume of sales, exempting small businesses. This has caused large firms to express their discontent with the new tax.

The Senate president said that a balanced budget is not a “partisan or coalition issue, it means being responsible to the country.”

In the same vein, the official statement of Puerto Rico’s Senate said they approved “a balanced budget without resorting to a loan for the first time in the last 20 years.”

The House of Representatives also passed the Tax System Adjustments Act, which exempts companies with annual gross sales of less than $3 million from paying the national patent.

According to a press release issued after the House floor vote, “Businesses with sales of $3 million up to $100 million will pay 0.35 percent on their annual income. While those with sales of $400 million will pay two special taxes, companies with anywhere from $3 million to $300 million in gross sales will pay 0.20 percent. Businesses with sales of US$300 million to US$400 million will pay 0.28 percent.”

House approves the new #budget for the next fiscal year.

Before this law, exemptions to the national patent only applied to Puerto Rico’s small and medium business with less than $1 million in annual income.

Jaime Perelló, chairman of the House of Representatives, said this measure is part of a governmental transformation and restructuring process aimed at improving the island’s welfare and finances.

“We are fostering economic development, while at the same time treating both employees and Puerto Rican businessmen fairly,” said the official.

Senate President Eduardo Bhatia defended the new tax, claiming big businesses previously paid too little in taxes relative to their size.

“Everyone is contributing. The corporate sector was using loopholes to avoid having to pay. Those who say they cannot pay have to open their books,” Bhatia said.

Perelló was not far behind, saying large companies can afford this tax “without problems” given their high volume of sales.

The chairman of the Treasury and Public Finance Committee, José Nadal Power, stressed that small businesses would be exempt from the national patent.

“This legislation reduces the tax burden on small and medium businesses. What we have done is to build consensus in the House and Senate, talk to small traders and representatives of the hotel industry, and reach a compromise. We have managed a solution that allows the small trader to legitimize an underground economic activity that the Treasury Department could not,” he said.

On the other hand, Jenniffer Gonzalez, spokeswoman for New Progressive Party in the House, opposed the initiative and said consumers would end up footing the bill.

“To say that corporations are going to pay is a mistake. Consumers will pay. A roll of toilet paper that cost $3 will cost $4, and the difference comes from consumers’ pockets,” said the opposition leader.

Senator Larry Seilhamer, a representative of the same party, put it bluntly by saying, “The national patent is not amendable. It must be eliminated.”

More Austere 2015 Budget

The most relevant aspect of Puerto Rico’s 2015 budget is that it succeeded in matching revenues with expenses for the first time in the last 20 years. This was achieved primarily through the extra revenue from the national patent and a reduction in congressional spending for paid, professional staff.

The budget also caps ordinary expenses and official trips.

On Monday evening, Congress also approved the Regulate Financial Services Act, which imposes a 2 percent tax on remittances, according to Rep. Charlie Hernández. The new law has caused widespread discontent among the Dominican community in Puerto Rico.

Legislators expect this new tax to funnel between $30 million and $40 million into the budget.

On the other hand, the government will provide fiscal incentives and financing for young entrepreneurs between the ages of 16 and 30, who will benefit from a tax exemption on their first $40,000 in wages and the first $500,000 in business revenue.

Translated by Daniel Duarte.

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