Puerto Rico Finally Approves Oil Tax Hike

After prolonged discussions, and a threat from Governor Alejandro Garcia Padilla to shut down public transport services, both Puerto Rico's House of Representatives and Senate have now approved a controversial 68 percent hike in oil tax to stop a possible worsening of the territory's debt problems. The increased revenues, worth some USD178m per year, will be used by Puerto Rico's Infrastructure Financing Authority 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. The territory's oil excise tax will rise by USD6.25 per barrel, to USD15.50 per barrel, from March 2015. The delay to the increase has been agreed 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. In addition, Puerto Rico's Senate has imposed other conditions on its approval. In particular, an 8.5 percent interest rate cap has been placed on the proposed bond sale, an inflation link to the oil tax rate has been eliminated, and the rate increase has been linked to progress on tax reform in the territory. The Treasury Department is now intended to complete a study on a tax reform framework before January 31, 2015. Those 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.

by Mike Godfrey

Puerto Rico Finally Approves Oil Tax Hike