Softer Puerto Rico revenues feed worries on tax forecasts

Wed Aug 21, 2013 2:39pm EDT

Aug 21 (Reuters) - Puerto Rico's government weathered a nearly 2 percent drop in revenue to $8.5 billion during fiscal 2013, reflecting sustained weaknesses in income tax collections softened by the Caribbean island's ailing economy.

Puerto Rico's revenues, which were down $155 million from fiscal 2012, remain a central worry to investors in America's $3.7 trillion municipal bond market, analysts said. The island already pays the highest rates of any big tax-free debt issuer.

The current fiscal 2014 budget covering the 12 months that began July 1 relies on a projected $1.38 billion from tax increases that some analysts and bond investors doubt will be fully collected.

Puerto Rico finance officials, who also said the overall fiscal 2013 budget deficit appeared to be $1.3 billion, instead of an initially forecast $2.2 billion, reported on Monday in a preliminary, unaudited statement that income taxes from people and companies had declined for a fourth straight year.

Total income tax collections declined for a fifth straight year and were $4.4 billion in fiscal 2013, down from $4.54 billion in fiscal 2012 and $5.19 billion in fiscal 2010, according to the preliminary statement.

Nearly all other categories of income taxes also declined, but for a $92 million year-over-year rise in those collected from non-residents. Excise tax collections on cigarettes and motor vehicles also showed increases in the last fiscal year.

"The negative trend of corporate tax revenue makes us pessimistic about the increased revenue projections for the current fiscal year, which budgets an additional $1 billion in spending," Morningstar Municipal Research analyst Candice Lee said in a commentary.

Struggling with long-running economic weakness and $70 billion of public sector debt, Puerto Rico's government said fiscal 2013 also included a sharp reduction in its general fund deficit.

The island's Treasury Department said an initial fiscal 2013 general fund deficit projected at $965 million by an earlier administration now looked to total $247 million. The island's general fund covers education and other essential spending.

Treasury Secretary Melba Acosta-Febo said in a news release that her department had just added 65 auditors to reduce tax evasion on the island.

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