Puerto Rico responds to fiscal crisis with a regressive tax that could hurt country's bottom line, poor people

By MoneyTimes

Aug 19, 2015 03:52 AM EDT

Puerto Rico is jacking up its sales tax in a bid to address its fiscal problems. This is considered a regressive move that could ultimately hurt the country's bottom line and its countless poor people.

Under the legislature and leadership of Democratic governor Alejandro Garcia Padilla, Puerto Rico increased its Sales and Use Tax (SUT) to 11.5% from 7% on July 1. That rate is higher that Tennessee's, which has 9.45%, the next highest state rate.

Puerto Rico will also soon charge a 4% rate for its professional services. This will become another underlying tax for the country's consumers. By April 2016, the SUT will become a Value Added Tax (VAT). The country's VAT taxes the bigger portion of production. Its VAT will soon be at 11.5% as well. 

This move of bringing up the tax is a way to pay Puerto Rico's debts and improve its credit score. The country is currently under a $72 billion debt. It also recently defaulted on a $58 million bond payment due to its corrupt and inefficient political system. Another reason for its debt problems is the fact that the country has been in recession for 9 years and is not making enough revenue. With all these financial problems piling up, it resolved to make a move to double-digit its VAT, which is the same thing that heavily-indebted nations like Spain and Greece are doing.

For the last eight years, Puerto Rico's gross national product has been dropping by 2 percent every year. There are 270,000 people that lost their jobs and 140,000 residents flee the country in 2014. The austerity measures from its government are considered an all-out war on its working class people.

But the colonial government is just a front, the real score here is the move from Corporate America and the wolves of Wall Street to play their game on the little Latin-American country.

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