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Puerto Rico: Legislators Approve Much-Debated Sales Tax Increase

Image: Puerto Rico Struggles With Impending Debt Crisis
Exteriors of Puerto Rico capital, San Juan, and a view of the legislature building.) / Getty Images

Following a months-long heated debate, Puerto Rican legislators narrowly approved an increase in the commonwealth's sales tax to generate more revenue and help stem the island's serious financial crisis. If approved, it would be the highest sales tax compared with any state in the U.S.

Puerto Rico's governor, Alejandro García Padilla, is expected to sign the bill, which will increase the sales tax from 7 percent to 11.5 percent. The legislators also agreed to create a new 4 percent tax on professional services. The sales tax increase would go into effect July 1 and the new tax on Oct. 1, with a transition to a value-added tax by April 1.

Puerto Rican officials said the tax increase could help generate $1.2 billion in revenue. The island is in its 8th year of recession and faces a $72 billion public debt. Puerto Rico's governor said the government could shut down soon in a few months f emergency measures were not taken.

If the measure is signed, it could help Puerto Rico access financial markets to issue up to $2.95 billion in bonds as planned.

Puerto Rico's Resident Commissioner Pedro Pierluisi, of the opposition New Progressive Party, said the measure would have a negative impact on Puerto Rico's economy. "This new tax will keep leading to closures and lost jobs," he said.

Following the sales tax debate, legislators will now take up the issue of a proposed $9.8 billion budget that includes calling for $674 million in cuts. The government has announced that it plans to close nearly 100 schools and 20 public agencies in a bid to save money and cut costs.

The proposed budget also sets aside $1.5 billion to help pay off Puerto Rico's debt, an increase of $400 million from the current fiscal budget.


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--The Associated Press