Puerto Rico Seen Collecting Up to $6.7 Billion From Proposed Tax

Puerto Rico would collect as much as $6.7 billion annually from a proposed 16 percent value-added tax, part of a plan to replace sales and use levies.

The projection is outlined in a report from KPMG LLP, which Governor Alejandro Garcia Padilla’s administration hired to calculate ways to boost revenue collection and better tax the U.S. commonwealth’s informal economy.

The figure is almost five times the $1.4 billion of sales-tax revenue that Puerto Rico expects to collect in the fiscal year through June, according to the Government Development Bank, which handles the island’s debt sales and lends to the commonwealth and its localities.

“The existing system is overly burdensome for taxpayers,” KPMG wrote in the report, released Wednesday. “It is estimated that the sales tax compliance rate is in the neighborhood of 56 percent, an obviously unacceptable number.”

The proposal is part of Garcia Padilla’s plan to boost the junk-rated island’s economy, which has struggled to grow since 2006.

A value-added tax would be applied at each level of production and distribution, according to the report. The KPMG estimate is based on a 75 percent compliance rate and would include exemptions for water, electricity and fuel.

Puerto Rico may not be able to use the entire $6.7 billion generated by the new tax structure: It may wind up having $3.25 billion because the territory would collect less from income and sales taxes, and would still need to direct $700 million to repay sales-tax bonds, according to the report.

The island had $15.2 billion of sales-tax debt as of July 31, according to the GDB.

Puerto Rico’s Treasury Department released the KPMG report after a judge on the island ordered the administration to make portions available to the public.