Puerto Rico announces plans for 60 pct hike in oil tax and a fiscal overhaul

Last Updated on Friday, 31 October 2014, 20:48 by GxMedia

San Juan, Oct 31 (EFEUSA).- Puerto Rico’s government told the investment community that it plans to overhaul its revenue system and raise an excise tax on oil by 60 percent, as part of an effort to reduce a large debt burden and bolster an economy that has been stagnant for eight years.

The announcement was made during a teleconference Thursday for analysts and investors, in which Melba Acosta, the president of the Government Development Bank for Puerto Rico, or BGF, reviewed macroeconomic results for the first fiscal quarter (July-September).

During the teleconference, she said a bill is under consideration in the legislature that includes measures to financially shore up Puerto Rico’s Highway and Transportation Authority, or ACT, one of several large public corporations on the island that are beset by a heavy debt load and operational problems.

That bill proposes an increase in the excise tax on oil starting March 1, 2015, from $9.25 per barrel to $15.50 per barrel, with the goal of raising an additional $178 million annually and using that extra revenue to alleviate the debts of the ACT and invest in public transportation.

Among other exceptions, the tax hike will not apply to the fuel purchased by the Puerto Rico Electric Power Authority, a government-owned corporation that also is experiencing severe financial woes.

Acosta, Puerto Rico’s former treasury secretary, acknowledged that the cash-strapped island is looking to regain access to capital markets.

She also noted that, although fiscal revenues in the first fiscal quarter were 2 percent lower than expected, expenditures were 4 percent below forecasts thanks to spending cuts, especially in the Department of Education.

In an interview with Efe prior to the teleconference, the president of the BGF said the tax overhaul is expected to take effect in April 2016 and that the overall idea is to shift the emphasis away from income taxes and toward consumption taxes.

The vice president of the BGF, Natalia Guzman, said of the power authority’s situation that the public corporation has met its obligations to creditors and that a five-year plan is being carried out to ensure its financial viability.

The company’s situation is critical because it has a debt load of more than $8 billion and its debt is rated at junk levels.

Puerto Rico’s secretary of economic development and commerce, Alberto Baco Bague, offered a message of optimism during the teleconference, telling analysts and investors that the U.S. commonwealth is on a path to transforming its economy.

He said the structural reforms being carried out will help create employment and that the Caribbean island has become an operations hub for Latin American countries looking to invest in the United States