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  • Writer's pictureThe San Juan Daily Star

Fiscal board leaves door open for allowing hurricane prep sales tax holiday

Fiscal Agency and Financial Advisory Authority Executive Director Omar Marrero Díaz

By The Star Staff

While the Financial Oversight and Management Board has informed Fiscal Agency and Financial Advisory Authority Executive Director Omar Marrero Díaz that Act 20-2022, which would temporarily exempt certain essential items and equipment at the beginning of the hurricane season from the payment of the sales and use tax (IVU by its Spanish acronym), is in violation of the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA), the board says it will allow the tax holiday under certain conditions.

The oversight board said Act 20 is significantly inconsistent with the Fiscal Plan, and directed the government to correct it and provide solutions by June 10.

With respect to implementing the law in the current fiscal year, “given the circumstances, the Oversight Board is willing, on a non-precedential basis, to review a reprogramming request to allow the [IVU] holiday to proceed later this month,” the oversight board said in a letter this week.

The tax exemption is slated to start next Friday, June 17 and end June 19.

A submission for Act 20 asserts that, despite decreasing projected revenues by an estimated $7 million per year, Act 20 is purportedly “not significantly inconsistent” with the certified 2022 Fiscal Plan for the Commonwealth. On May 20, the island Treasury Department submitted a determination for the oversight board’s review that sought to assure that the determination and other items “are not inconsistent with the approved fiscal plan.”

On May 24, the oversight board concluded that the determination was inconsistent with the Fiscal Plan and could not be approved.

In response, the Treasury Department submitted a letter dated May 25 containing proposals to address the revenue deficiency in future fiscal years, proposals that were not contained in Act 20 itself. With respect to Act 20’s impact on the current fiscal year, the Treasury Department proposes to pay for the costs associated with Act 20 by relying on surplus revenues collected by the commonwealth, “and/or the savings of expenditures identified by the Office of Management and Budget [OMB].”

The May 25 letter was accompanied by a certification from the OMB identifying $7 million in surplus funds from the budget of the Department of Education to offset the revenue losses of Act 20 for the current fiscal year. No reprogramming request to effectuate that transfer has been made.

The May 25 letter also identified two proposals that would increase IVU revenues in future fiscal years to offset Act 20’s costs: “amend[ing] the [IVU] provisions … of the Puerto Rico Internal Revenue Code to clarify the application of the [IVU] on specified digital products, and “eliminat[ing] the difference in tax treatment between hard seltzers based on distilled spirits produced in Puerto Rico from those not produced in Puerto Rico.”

If those proposals are implemented, Treasury estimates that IVU revenues would increase by some $7.1 million and $2.7 million, respectively. In its May 25 letter, Treasury also noted that the implementation date of the IVU holiday has been rescheduled to commence on June 17, 2022 and end at midnight on June 19, 2022.

“The Oversight Board acknowledges the importance of ensuring the people of the Commonwealth are prepared for hurricane season and applauds the Government for looking for ways to guarantee that,” the board said. “However, upon receipt of the Submission for Act 20 and the Determination, the Oversight Board has concluded Act 20 is significantly inconsistent with the Fiscal Plan, as it will result in a revenue loss without identifying in the legislation itself revenue increases or spending reductions, and is therefore not revenue neutral. While the Government has subsequently identified potential sources of funds, these funding sources have not been secured by the Act itself or by an approved reprogramming request.”

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