GDB chief goes to bat for tax reform

Government Development Bank President Melba Acosta has gone to bat for the tax reform during a hearing at the Senate Finance Committee, calling it the “most transcendental change proposals to get the island out of the crisis.”

Taking on reform critics Thursday, Acosta said  the measure was not merely about raising a consumption tax to 16% from 7%, but also includes large income tax rate reductions, measures to combat evasion through self-regulation and redistributes the tax burden in a fairer manner.

“During the last eight years, the government’s fiscal situation has presented an alarming picture,” Acosta said, adding that spending cuts, the creation of the sales & use tax (IVU by its Spanish acronym) and a previous tax reform have all failed to spark economic development.

Casting blame on the preceding administration of Gov. Luis Fortuño, Acosta said that the $16.5 billion borrowed during 2009 to 2012 has “eroded our capacity to put more resources to develop the economy.”

“The chronic borrowing, together with the fragility of our economy, caused the degradation of the commonwealth credit rating to speculative levels, limiting our access to capital markets,” she said.

The GDB chief confronted critics of the reform, which calls for a 16% value-added tax (VAT, also known as IVA by its Spanish acronym), who have called for spending cuts, saying that the current administration has reduced spending by $1.58 billion annually or 14.47%. She also said that central government employment paid for with commonwealth funds has fallen by 34% since 2007.

Acosta said the Treasury Department has been taking steps to implement the IVA for some time now, with a big step being taxing goods that enter Puerto Rico’s ports, and said the plan calls for the tax to be slowly phased in while Treasury is restructured.

She also emphasized that low-income taxpayers would receive tax relief through direct payments from Treasury, which is “a fundamental part” of the proposed new tax system.

But she said the amount of that relief would depend on how many exemptions to the new tax are granted in the final legislation.

Acosta acknowledged the widespread opposition to the proposal and said the administration is open to changes.

“This administration is willing to look at all possibilities. We assumed the bill would undergo amendments. There is openness to all possibilities. Can the bill be improved? Of course, it can. This is not as simple as changing the IVU to a VAT. This is an issue of dollars and cents,” Acosta said.
By : JOHN MARINO

GDB chief goes to bat for tax reform

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