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Alternative Market Briefing

Puerto Rico passes tax reform as hedge funds eye bonds

Wednesday, May 27, 2015

Bailey McCann, Opalesque New York:

Puerto Rico has passed a revised version of a sales tax reform bill. The bill will effectively increase sales tax on a range of goods, on the debt strapped island, from the current rate of 7% to 11.5%. Additionally, the bill creates a new 4% tax on professional services. Governor Alejandro Garcia Padilla is expected to sign the measure which will provide immediate and much needed tax revenue, as well as a measure of financial stability, ahead of a bond issue expected within weeks.

The bill is significant as a previous tax reform package proposed by the Governor in April was rejected by lawmakers. The new measure was narrowly passed by both houses following a brief amendments process that exempts certain processed foods from the tax increase. The increase could generate as much as $1.2 billion in tax revenues according to government projections. Puerto Rico currently owes some $72 billion in public debt.

The government also plans a $2.95 billion bond issue, which will come as lawmakers debate a new budget that includes a $1.5 billion set-aside for debt service.

"The political process has been more difficult than we envisioned - we thought the [original] tax plan would be approved easily, but it is what it is," Secretary of Economic Development & Commerce Commonwealth of Puerto Rico, Alberto Bacó Bagué told Opalesque on a recent trip to ......................

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