(Reuters) – Puerto Rico’s governing party reached a tentative agreement on new tax measures, officials said Thursday, potentially avoiding a government shutdown and paving the way for a bond deal that could raise as much as $2.95 billion.
Under the terms of the agreement, which must be formally voted on in the legislature, Puerto Rico will increase its existing sales tax to 11.5 percent from its current 7 percent, while moving to a value added tax (VAT) within a year, according to Governor Alejandro Garcia Padilla.
If ratified, the agreement would help remove a major uncertainty for the U.S. territory which is struggling with $72 billion in debt and a stagnating economy.
Puerto Rico’s budget plans have been is disarray after an earlier VAT proposal was defeated in the House of Representatives last month when six lawmakers from the governor’s Popular Democratic Party (PDP) refused to back it.
Padilla said the government would gain $1.2 billion in tax revenues under the new measures, less than the $1.5 billion projected under his original proposal to introduce 16 percent VAT.
“We will have to make adjustments on government spending, but they won’t have to be the $1.5 billion we talked about if nothing had been done,” Padilla said, adding the government would now need to cut about $500 million from the budget.
