Amid the troubling status of the Puerto Rican economy, the commonwealth's governor proposed a double-digit value-added tax in hopes to building the government's revenue.

Puerto Rico Gov. Alejandro Garcia Padilla proposed a 16 percent value-added tax, which is detailed in a 1,435-page legislation. His proposal, however, will require public hearings by Puerto Rico's legislators. The tax proposal comes after Garcia Padilla met with business owners and private sector groups about the value-added tax for the island's economic recession.

As The Associated Press noted, a value-added tax is applied "at every stage of a product's manufacture, distribution and sale." With the value-added tax, Garcia Padilla also proposed the elimination of Puerto Rico's sales-and-use tax and a gross receipts tax. In addition, select food items, prescription medicine and petroleum will not be taxed. The tax proposal will only affect businesses who earn more than $75,000 in sales a year.

During a television address, Garcia Padilla said the value-added tax would guarantee fairness for the island's residents. He added, "We are in a system that is inefficient and unjust that punishes working-class families."

According to Treasury Secretary Juan Zaragoza, via the Associated Press, the value-added tax proposal is an effort at "rebalancing the system." He added, "At the end of the day, people consume, regardless of how they make their money."

Meanwhile, approximately 835,000 people will receive tax breaks, as income tax will be voided for the first $40,000 earned by individuals or couples earning $80,000. Individuals who earn less than $40,000 could also be eligible for reimbursements for some tax-applied purchases.

According to Bloomberg, Puerto Rico's economy has not grown since 2006, and the governor's proposal could accrue nearly $1.5 billion in new revenue for the territory. The value-added tax revenue would also help repay $15.2 billion of sales-tax debt.

"This will allow us to ensure that we have cash flow to provide funds to pay current and future obligations and pay off debts without taking on more debt," Garcia Padilla added.

According to KPMG LLP., an organization Garcia Padilla hired to determine how to improve Puerto Rico's revenue collection and tax efforts, wrote in a report, "The existing system is overly burdensome for taxpayers. It is estimated that the sales tax compliance rate is in the neighborhood of 56 percent, an obviously unacceptable number."

KPMG estimated that project Puerto Rico could gain approximately $6.7 billion, per year, with the 16 percent value-added tax.

As Latin Post reported, the Hispanic Leadership Fund (HLF) categorized Puerto Rico's economic policy, under Garcia Padilla's leadership, as a "failure." HLF noted the cost of living in the island is 13 percent more expensive compared to mainland U.S., and 100,000 Puerto Ricans left the commonwealth since the governor's 2013 inauguration.

"Puerto Rico can no longer afford the policies of Governor Garcia Padilla," HLF President Mario H. Lopez said in a statement in late January. "With 14 percent unemployment, a jobless rate of 39 percent among younger Puerto Ricans, 80 new taxes implemented and 47,000 jobs lost under his watch, the Puerto Rican people have suffered enough."

The Puerto Rico Federal Affairs Administration (PRFAA) refuted HLF's claims. In a statement to Latin Post, PRFAA Director Juan Eugenio Hernandez Mayoral said, "The Hispanic Leadership Fund is leading a malicious campaign of attacks against the Government of Puerto Rico. With its deceptive advertising, the HLF is threatening to discredit the credibility of the Government and thus destabilizing the quality of life for all Puerto Ricans. In the meantime, Gov. Garcia Padilla is hard at work improving Puerto Rico's economy, creating over 50,000 jobs and promoting economic development, bringing companies like Lufthansa to Puerto Rico."

Puerto Rico's unemployment rate is higher compared to any U.S. state and more than double the national average: 13.7 percent to 5.7 percent.

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For the latest updates, follow Latin Post's Michael Oleaga on Twitter: @EditorMikeO or contact via email: m.oleaga@latinpost.com.

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