SAN JUAN, Puerto Rico – Puerto Rico’s government is cracking down on tax evaders to increase revenue and help pay off $70 billion in public debt after recent downgrades put the island’s credit rating into junk status, officials said Tuesday.
Treasury Secretary Melba Acosta said a task force has been set up to target both business owners and individuals, adding that authorities are investigating more than 100 cases and more are expected to follow.
Puerto Rico currently has only a 56 per cent “capture” rate on tax revenues that should be taken in, losing some $800 million annually as a result, economist Gustavo Velez says.
The Treasury Department already has referred 12 cases representing a total of more than $8 million in unpaid taxes to the island’s justice department.
“This money belongs to the people of Puerto Rico,” Justice Secretary Cesar Miranda said. “It represents a teacher’s salary, a town’s road, a police officer’s uniform.”
Two business owners have been charged with 36 counts of tax evasion and illegal appropriation, and officials warned that dozens of others could face similar accusations.
Acosta said the government is taking other measures, including publishing the names of violators and applying a 7 per cent sales-and-use tax to merchandise as soon as it arrives at the island’s docks.
The announcement comes as Puerto Rico prepares to re-enter the bond market and as legislators hold public hearings for a measure that would authorize the sale of up to $3.5 billion in bonds.
The money would be used to pay old debt, said Eduardo Bhatia, president of Puerto Rico’s Senate.
“Puerto Rico has to live within its means, and it has not done so,” he said during the hearings. “Everyone’s collective patience is running out. … We will approve this transaction, but it will be the last one.”
Government officials held a webcast with investors Tuesday to talk about those plans, assuring them the U.S. territory would not default on its debt. Investor concerns centred on the administration’s ability to present a balanced budget as promised and a request to see the government’s financial statement for the 2013 fiscal year.
Puerto Rico’s bonds have been popular with U.S. investors because they are exempt from federal, state and local taxes, and its debt is held by roughly 70 per cent of U.S. municipal mutual funds, according to investment research firm Morningstar.
Standard & Poor’s downgraded Puerto Rico’s credit one notch earlier this month, while Moody’s Investors Service and Fitch Ratings have lowered it two notches.
The island of 3.7 million people is in its eighth year of recession and has a 15.4 per cent unemployment rate, higher than any U.S. state.