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Puerto Rico's House Approves Oil Tax Hike

by Mike Godfrey,, Washington

04 December 2014

Puerto Rico's House of Representatives has approved a controversial 68 percent hike in oil tax to stop a possible worsening of the territory's debt problems, following a stand-off with Governor Alejandro Garcia Padilla, who had threatened to shut down public transport services.

After much negotiation with lawmakers in the House to obtain the required majority, it is planned that the oil excise tax will rise by USD6.25 per barrel, to USD15.50 per barrel, from March 2015.

The increased revenues, worth some USD178m per year, will be used by Puerto Rico's Infrastructure Financing Authority, which is to assume and refinance the debt of the Highways and Transportation Authority, which is in financial difficulty, and support the issue up to USD2.9bn in bonds.

Implementation of the tax increase will be delayed until March 2015 to give time for the Government and lawmakers to look for other replacement revenue sources that could be less of a burden on families and small businesses. The Senate has yet to approve the relevant legislation.

A joint committee of both Government and Congress representatives is to be formed immediately to assess such alternatives. It is planned that the committee's deliberations will be aided by the Treasury Department's study on a new tax reform framework that is intended to be introduced during the first quarter of next year. It is now expected that the study should be completed before January 31, 2015.

The tax reforms could reduce Puerto Rico's dependence on the collection of direct taxes by, for example, raising individual income tax thresholds and transforming the present sales and use tax into a broad-based value added tax.

TAGS: individuals | tax | business | sales tax | energy | law | tax thresholds | oil and gas | excise duty | legislation | tax rates | Puerto Rico | tax reform | individual income tax

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