The shortfall, first reported by CARIBBEAN BUSINESS Online on Friday, dominated news radio airwaves on Monday as economists, Cabinet officials and lawmakers weighed in on ways to shore up revenues to meet Gov. Alejandro García Padilla’s pledge to have Puerto Rico’s first balanced budget in years.
Puerto Rico’s tax revenues missed estimates for the pivotal month of April and are trailing well behind projections for the year with two months left in fiscal 2014, the Treasury Department reported Friday.
The $1.18 billion collected as income taxes came due in April was $442 million less than projected, mainly due to a $380 million shortfall in the corporate taxes target as more than half of all corporations (53 percent) did not submit payment on estimated taxes with their returns.
The April collections brought the total net through the first 10 months of fiscal 2014 (June-April) to $7.26 billion, $356 million less than projected for the period. The tax haul was up $465.4 million from the same period in fiscal 2013 after the García Padilla administration implemented some $1.5 billion in new tax measures during its first year in office.
Economist Elías Gutiérrez said Monday that with less than two months until the start of fiscal 2015 (July 1), there is no time for most budget adjustments or additional tax hikes. He said that leaves just two avenues to make up for the lagging revenues: issue more debt or lay off government workers.
“The economy is being strangled by the government,” Gutiérrez said in a radio interview. “It isn’t a question of a few companies not paying. It is that half of all businesses can’t pay.”
The only way to cut costs further now is to reduce the public payroll, he said.
“Time has run out. That is the problem,” Gutiérrez said. “Another loan will have to be taken to cover this.”
To cover his $9.64 billion spending plan for next year, García Padilla is calling for more than $1.4 billion in cuts and adjustments by consolidating 25 government agencies and imposing an average 8 percent spending cut for most agencies, among other things in what is being billed as Puerto Rico’s first balanced budget in years. He also pledged $775 million to pay off debt — $525 million more than in last year’s budget. At least 100 underutilized public schools could be closed.
García Padilla has vowed that public sector layoffs won’t be considered, a position echoed Monday by Senate President Eduardo Bhatia and House Speaker Jaime Perelló.The two legislative leaders also ruled out additional tax hikes and new levies.
However, the governor’s proposed spending plan also relies on a range of revenue moves, including tax hikes and relief cuts, aimed at boosting annual income by more than $650 million.
The proposed consolidated budget, which includes federal funds and other government revenues, is $28.13 billion for fiscal 2015, a 3 percent decrease from $29 billion this year.
House Treasury Committee Chairman Rafael “Tatito” Hernández, who is overseeing budget hearings on García Padilla’s $9.64 billion spending plan for fiscal 2015, acknowledged Monday that the gulf in business tax payments has changed the whole landscape in terms of analyzing the balanced budget proposal.
Citing a “change in the budget climate,” Hernández opened the door to tax increases or “deeper cuts that are currently being considered as part of education and energy reforms.”
“It’s a question of how far you can cut before reaching the bone,” the lawmaker said in a radio interview.
“If we don’t have enough to cover the budget we’ll have to make dramatic adjustments,” Hernández said.
“Renegotiating the debt is the last alternative,” he added. “Our aim has always been to safeguard the island’s credit.”
Acosta told lawmakers during budget public hearings last week that the Treasury Department continues to observe the behavior of revenues in the present fiscal year — while the proposed $9.64 billion budget fiscal 2015 budget plan is being considered — and its effect on estimates so as to keep the Legislature informed of any changes. While preparing the revenue estimates for the fiscal 2015 budget, the fiscal 2014 revenue base was already reduced by $537 million. The Treasury Department is analyzing April revenues to determine whether they could impact fiscal 2015 estimates.
“Certainly, these are not exactly the results we expected. However, at the Treasury Department we will continue working on a fair tax reform that simplifies tax processes and promotes economic development; at the same time, we will continue strengthening oversight efforts to increase capture rate and fight against tax evasion, thus, attaining the financial goals we have set,” Acosta said in a statement on Friday. “Puerto Rico faces difficult and extraordinary times that demand that we all fulfill our responsibilities and contribute towards the reconstruction of our island.”
The $1.18 billion in revenues last month exceeded April 2013 revenues by $196 million, or 20 percent. In April, the month when tax returns are filed, all the principal tax revenue sources reflected increases when compared to last year.
The 6.8 percent increase over last year is due to the revenue measures enacted as part of last year’s budget to reduce the fiscal deficit, specifically the gross receipts tax (patente nacional), and the excise tax rate increase on foreign corporations, according to Acosta.
Nevertheless, April revenues were $442 million below estimates, with $380 million corresponding to the corporate income taxes line revenue. Year-to-date (July-April) revenues are below budget estimates by $356 million.
In the specific case of corporations, the Treasury secretary noted that this fluctuation, which is still being analyzed, is preliminarily attributed to a combination of different factors that were identified after the tax return filing due date, April 15.
“One of the factors that we are closely looking into are the thousands of applications for extensions of time sent with no payments (53 percent), from corporations that did not make estimate payments and the payments they included with the tax returns were below expectations. The time extension for corporations is for three months and ends July 15, 2014. We are closely monitoring this behavior until the time extensions are due to see the results for this line item,” Acosta said.
Acosta said that the Treasury Department is conducting an in-depth analysis of all this in order to take the pertinent actions. Treasury Department personnel are examining the information of the taxpayers in question and contacting those who, according to the agency’s records, should have filed their applications for extension of time with a payment, and did not, or paid less than what they were supposed to.
Corporate taxpayers that filed applications for extensions of time without a payment or with an insufficient payment could be subject to a surcharge of up to 10 percent, plus interest at a 10 percent annual rate.
“There were many extension requests. What draws our attention is the requests were not accompanied by payments,” Acosta said in a radio interview Monday. “That is a little bit strange.”
Other factors that may have influenced the behavior of corporate taxes are: credits and other items that are trailing from previous years that were higher than those taken into consideration in the projections and reduced the tax payments, purchase of tax credits above projections, a timing difference in filing of tax returns by corporations as some close their books on dates other than December 31 (e.g., corporations that close their books on January 31, file their tax returns on May 15).
Sales & use tax collections (IVU by its Spanish initials) reached $105.6 million in April. The year-over-year increase in April, at 13.2 percent, was the highest for any month since the IVU was implemented in 2006. The $376.8 million in IVU collections during the July-April period was $11 million less than estimated.
Tax shortfall sparks budget questions
No comments:
Post a Comment