You read correctly.  In reaction to record budget shortfalls on the island, the Puerto Rican legislature passed a bill raising taxes on some of the largest companies within its borders.  Then on Monday, the governor announced plans to reduce taxes on businesses and personal incomes, in an effort to jumpstart the economy.

We will provide an analysis in the coming days, but in the meantime you can read more in the following articles submitted through Reuters, respectively titled “Puerto Rico slaps new tax on offshore business” and “Puerto Rico unveils tax cuts to reignite economy.” 

Puerto Rico slaps new tax on offshore business

SAN JUAN, Puerto Rico, Oct 24 (Reuters) – Puerto Rico’s lawmakers approved legislation over the weekend to implement a temporary tax on offshore manufacturing firms in the recession-hit U.S. territory.

Governor Luis Fortuno will elaborate on the tax in a special address to Congress on Monday night, but administration officials said it would target between 40 to 50 firms operating on the island and making more than $75 million annually.

Without the benefit of public hearings, the legislation cleared both the House and the Senate on Saturday along party lines, with the pro-statehood New Progressive Party largely approving the bill and the minority pro-commonwealth Popular Democratic Party (PDP) opposing it.

“A balanced distribution of the tax burden is fundamental to the economic future of Puerto Rico,” House Speaker Jennifer Gonzalez said in defending the measure.

PDP lawmakers and business groups, however, criticized the measure for being passed without public hearings and without analysis and warned that it could deepen the economic crisis confronting the island, which has been in recession since 2006.

In addition to the recession, Fortuno has been battling a $3.2 billion deficit since he entered office in January 2009, which has forced him to cut spending across the board and to fire about 13,000 public sector employees.

“If this is the right alternative, why was it approved in the middle of the night and in record time,” said PDP Senator Eduardo Bhatia.

The measure will take effect Jan. 1 and run through 2016. The first year a 4 percent tax will be levied on the firms, followed by 3.75 percent in 2012 and 2.75 percent in 2013.

The tax will then shrink gradually from 2.5 percent in 2014 to 2.25 in 2015 and 1 percent in 2016, the final year it will apply.

While Puerto Rico is a U.S. commonwealth, it operates as a separate taxing jurisdiction and allows for the deferral of federal taxes on profits of offshore firms as long as they are not sent back to the United States.

The new legislation would apparently close some loopholes by targeting operations involving so-called “local affiliated corporations.” (Editing by Tom Brown)

Puerto Rico unveils tax cuts to reignite economy

SAN JUAN, Puerto Rico, Oct 25 (Reuters) – Puerto Rico’s governor on Monday announced plans to cut business and income taxes by more than a $1 billion annually over the next seven years in an attempt to jumpstart the U.S. territory’s economy.

Governor Luis Fortuno laid out the plan in a special address to the Puerto Rican legislature after a weekend vote by lawmakers to slap a six-year tax hike on offshore manufacturing firms operating on the island.

Fortuno called the plan the biggest tax relief package in Puerto Rico’s history and said ordinary taxpayers would see a 50 percent reduction in their taxes when the reform is fully implemented.

Businesses would receive an average 30 percent cut, he said.

“This will give the final push our economy needs to be reborn, to grow and to create jobs,” Fortuno said to loud applause from lawmakers.

The cuts will be applied to the current tax year, he added.

The tax increase on offshore companies will target around 40 to 50 multinational firms that earn $75 million or more a year, bringing $5.8 billion over six years to state coffers, according to administration officials.

Some lawmakers and business groups criticized the measure, which was passed without public hearings, and warned it could deepen the economic crisis confronting the island, which has been in recession since 2006.

In addition to the recession, Fortuno has been battling a $3.2 billion deficit since he entered office in January 2009, which has forced him to cut spending across the board and to fire about 13,000 public sector employees.

Puerto Rico is a U.S. commonwealth, but operates as a separate taxing jurisdiction and allows for the deferral of federal taxes on profits of offshore firms as long as they are not sent back to the United States.

Lured by the tax benefits, some of the offshore firms include pharmaceutical manufacturers, technology and engineering firms ranging from Eli Lilly (LLY.N), Cisco Technologies (CSCO.O) to Oracle (ORCL.O), among others.

The take increase measure will take effect Jan. 1 and run through 2016. The first year a 4 percent tax will be levied on the firms, followed by 3.75 percent in 2012 and 2.75 percent in 2013.

The tax will then shrink gradually from 2.5 percent in 2014 to 2.25 in 2015 and 1 percent in 2016, the final year it will apply.

 

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