Puerto Rico’s Fortuno Uses Game of Chance to Repair Tax System

Simone Baribeau, Business Week, February 7, 2011

A 10-digit lottery number on a crumpled Church’s Chicken receipt is Governor Luis Fortuno’s solution for pulling Puerto Rico from its “lost decade” and may salvage his popularity.

The number, printed at a Ponce restaurant by a machine that reports sales directly to the Commonwealth’s Treasury, seeks to turn every Puerto Rican into an enforcement agent. The program will give anyone with a receipt a chance to win $1,000 or a car, while forcing businesses to report and pay taxes.

Consumers have a “personal interest in making sure that the tax is collected and sent over to our local Treasury Department,” Fortuno, a 50-year-old Republican, said in an interview in his San Juan office.

Governors across the U.S. are confronting deficits that total $125 billion in the next fiscal year by cutting spending and raising money. {snip} Fortuno’s approach is to crack down on cheating. His anti-tax-evasion policies will increase the commonwealth’s projected $8.1 billion revenue by $305 million this year, Treasury Secretary Luis Puig said in a telephone interview.

Pervasive Evasion

Free lottery tickets may be more to the public’s liking than other measures Fortuno took in his first two years in office. He sparked student strikes when he raised fees to help balance the university’s budget. He prompted street protests when he fired workers to help bring the territory’s deficit to $1 billion in the current fiscal year from 2009′s $3.3 billion, the largest of any state’s proportionate to revenue.

Now, still dealing with a contracting economy, Fortuno’s tax overhaul may prove more popular. He promoted a measure last year to boost revenue by tightening the net on collections, and another to cut taxes, which the Legislature passed Jan 31.

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“The tax system is so oppressive that people basically want to avoid it,” he [Jose Villamil, chairman of Estudios Tecnicos, an economic consulting firm in San Juan] said in a telephone interview. “Tax evasion is pervasive; it includes high-income professions such as doctors and lawyers that collect fees in cash,” as well as people selling food and other items on the street.

Fixing the System

Fortuno’s measures include requiring banks to provide income information on some borrowers, limits on a mortgage- interest deduction and penalties for corporate tax evasion. The moves, along with a temporary 4 percent excise tax on foreign manufacturers, will allow the territory to lower business levies an average of 30 percent and individual assessments by 50 percent over six years. Residents who earn less than $20,000 no longer have to pay income taxes.

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‘No Decisions’

The husband of real-estate attorney Luce Vela and father of 19-year-old triplets was executive director of Puerto Rico Tourism Co. and secretary of the Department of Economic Development and Commerce. In 2004, he was elected resident commissioner, the territory’s non-voting member of Congress.

Hot Dogs, Too

The commonwealth began the lottery pilot program in December in about 200 businesses in Ponce, the second-largest city. Every receipt will be a free ticket for a twice-weekly drawing, said Puig.

All businesses will have a machine, even outdoor kiosks, which have a wireless version. Dixon Diaz, selling hot dogs at his father’s cart in Ponce and handing out receipts, said the business had long paid taxes; others should as well.

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