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Puerto Rico slaps new tax on offshore business
SAN JUAN, Puerto Rico |
SAN JUAN, Puerto Rico (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 January 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)
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