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Treasury Secretary Confident FY 2003 Deficit Can Be Avoided

Counting On Series Of Crackdowns To Help


November 21, 2002
Copyright © 2002 CARIBBEAN BUSINESS. All Rights Reserved.

Tax revenues for fiscal year 2003 (FY03) are coming in slightly below estimates, but Treasury Secretary Juan Flores Galarza says the difference is within manageable margins.

For the first quarter of FY03, overall revenue was only $4.5 million below Treasury’s estimates. Flores Galarza said that figure isn’t bad, particularly considering the more significant shortfalls experienced by most U.S. states during the period.

He cautioned, however, that too much shouldn’t be made of the fact that corporate income tax revenue for the first quarter of FY03 was lower than that recorded for the same period last year and a full $26 million below Treasury’s projections.

"Corporate tax revenues are typically less predictable," he said. "Payroll tax deductions from individuals, on the other hand, came in $10.9 million higher than in the same period last year and only $7.3 million below our estimates."

Pointing to excise tax revenue as a good barometer of economic activity, he noted revenue in that category was also up compared with the same quarter a year ago, but still $4.9 million below Treasury’s projections.

Flores Galarza added that so far, he sees revenue patterns reflecting relative economic stability, though he acknowledged the estimates were based on Planning Board predictions earlier this year that the economy would be registering more vigorous growth during the period.

He said he expected the administration’s excise tax increases on alcoholic beverages will further boost revenues during the coming holiday season. So far, excise tax revenue on alcoholic beverages–while obviously up in comparison with last year, before the increases–are several million dollars below projections.

One area in which projections are being exceeded is revenue from lottery operations, which reported a $40.1 million increase over the same period last year. That figure is $14.8 million above projections.

Counting on crackdown efforts

The Treasury secretary is placing heavy emphasis on the agency’s latest efforts to crack down on tax evaders. In the four months since it was created, the department’s new Office of the Assistant Secretary for Tax Evasion & Corruption has unleashed a probe into excise tax evasion by an apparently significant number of yacht owners in Puerto Rico.

That effort is currently held up in court, Flores Galarza said, because of the unwillingness of marinas to provide information about their clients. "We’re not only going after the unpaid excise taxes by some of these yacht owners," he said. "I have no doubt this effort will also uncover other tax evasion by some of these people."

Flores Galarza said the new unit plans to continue attacking various sectors in which the probability of significant tax evasion has been identified. He declined to reveal those sectors, however, since the department places a premium on the element of surprise.

The Treasury secretary said the chronic underreporting of taxable income continues to be a major concern. For example, among the island’s 925,000 taxpayers (including married couples filing jointly), only 14,000 reported incomes in excess of $100,000 for tax year 2000.

"It doesn’t make sense," he said. "Just consider the numbers of doctors, accountants, architects, engineers, etc., and it doesn’t make sense." He noted that 10,500 of the 14,000 island taxpayers reporting incomes exceeding $100,000 were salaried employees, so the problem essentially has to do with self-employed professionals and business owners.

Movement toward sales tax

Flores Galarza said Treasury has been working with the Puerto Rico CPA Society and with other professional and business organizations that favor substituting the current excise tax system with a consumption tax or sales tax.

"We’ve received resolutions from the CPAs, the Chamber of Commerce, the Manufacturers Association, and MIDA [Food Industry, Marketing & Distribution Association] and they all support the change," he said. "We’re doing an internal analysis and are waiting for the House of Representatives to release the results of its study before we proceed."

Flores Galarza said Treasury wants to be certain that a consumption or sales tax would result in significantly increased revenues in comparison with the current excise tax system. "Conceptually it makes sense, but we have to confirm the premise that it is going to generate much more income," he said.

This Caribbean Business article appears courtesy of Casiano Communications.
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