Assessment of Puerto Rico's Tax Administra5on ("Hacienda")

Transcription

1 Puerto Rico Associa5on of CPAs Forum PR Tax Reform 2015 December 2014 Assessment of Puerto Rico's Tax Administra5on ("Hacienda") José R. Oyola, Ph.D., CPA This revised version incorporates comments and new informa3on as of 20 december 2014

2 BACKGROUND Plans to Enact a Major Tax Reform in ) Puerto Rico is planning to make a major tax overhaul by March 15, ) The tax plan includes more than $1 billion in income tax reducqons, which will be replenished by a new Value Added Tax (VAT). The VAT will replace the exisqng sales and use tax (SUT). 3) Puerto Rico has already paid more than $3 million to KPMG to create a general equilibrium econometric model of Puerto Rico, with several Tax AdministraQon modules. KPMG outputs have not been disclosed to the public. OBJECTIVES, SCOPE & METHODOLOGY 1) The objecqve of this presentaqon is to present a profile of Puerto Rico's Tax AdministraQon, known as "Hacienda", and determine if it has the insqtuqonal capacity to carry out a comprehensive tax reform by March ) This presentaqon relies on external sources of budget and tax data to present an independent assessment of Puerto Rico s Tax AdministraQon. 2

3 ExecuQve Summary 1) Hacienda's costs of collec9ng tax revenues is much higher than similar costs in other developed countries. 2) Hacienda uses less technology and informa9on systems than other developed countries. 3) Hacienda has lost more than 50 percent of its personnel in last two decades. 4) Hacienda over- esqmates its revenue proyec9ons repeatedly, which has led to tax amnesqes and public borrowing to close budget shordalls. 5) Hacienda does not publish performance reports regularly, with reliable indicators of its operaqonal efficiency, its goals and achievements (effecqveness), and the quality of its services to clients. 3

4 ExecuQve Summary Conclusion Puerto Rico s Tax AdministraQon ( Hacienda ) lacks the technical resources and informaqon systems which are required to carry out a comprehensive tax reform in the near future. Proposal The Legislature and the ExecuQve should consider establishing an Office of Tax Intelligence to serve both branches of Government, with the experqse and informaqon systems to strenghten tax compliance and increase tax collecqons in Puerto Rico. 4

5 (1) Puerto Rico Tax AdministraQon s cost of collec9on has averaged $2.41 per $100 of General Fund Revenues in last 20 years $3.50 $3.00 $2.50 $2.00 $2.80 $2.40 $2.60 $2.64 $2.37 $2.28 $2.27 $2.32 $2.28 $2.53 $2.11 $2.23 $2.27 $2.21 $3.24 $2.25 $2.44 $2.07 $1.94 $1.50 $1.00 $0.50 $ * Sources: author s esqmate based on budget data in PR s Office of Management & Budget, available in hop://www2.pr.gov/agencias/ogp/, Appendix in this presentaqon provides original data. * 2015 esqmates: $1.94 includes temporary excise tax paid by CFCs; $2.44 excludes CFC excise tax. 5

6 (1) Puerto Rico Tax AdministraQon s cost of tax collec9on is several Qmes higher than other developed countries Cost of collecqng $100 United States $0.45 New Zealand $0.75 Australia $0.93 Puerto Rico $1.94 Sources: PR: see appendix. OCDE: Tax Administra5on in OECD and Selected Non- OECD Countries: Compara5ve Informa5on Series, (2008),Tabla 11, pág. 87 6

7 (2) Puerto Rico Tax AdministraQon s Technology & Informa9on Systems budget has diminished 73% in 20 years 17.3% 13.1% 6.7% 6.3% 4.7% Source: Budget reports, available in hop://www2.pr.gov/agencias/ogp/ 7

8 (2) Tax administraqons in developed countries spent far more in Technology and Informa9on Systems than Puerto Rico s Hacienda IT costs / aggregate costs United States 15.1% New Zealand 29.0% Australia 21.9% Puerto Rico 4.7% Sources: PR: budget reports OCDE: Tax Administra5on in OECD and Selected Non- OECD Countries: Compara5ve Informa5on Series, (2008),Tabla 10, page 85 8

9 (2) Past official tax reports have idenqfied the criqcal lack of IT systems in Puerto Rico s Tax AdministraQon which are required to improve tax compliance Otro aspecto significa9vo que debe ser resuelto con urgencia es la disponibilidad de tecnología de información para agilizar los aspectos de cumplimiento y facilitar las tareas de fiscalización efec9va. Source: Informe de la Comisión Especial para la Reforma Fiscal de Puerto Rico,

10 (3) Hacienda s personnel has diminished 52% since ,000 4,500 4,000 4,583 4,277 4,193 4,019 4,120 3,789 3,500 3,000 3,126 2,918 2,500 2,000 2,064 2,180 1,500 1, Source: Office of Management & Budget, Hacienda s budget reports, available in hop://www2.pr.gov/agencias/ogp/ 10

11 (3) Hacienda s personnel costs have diminished 36% since 2005 $160 $140 $120 $100 millones $86 $85 $83 $89 $108 $106 $109 $124 $146 $143 $137 $134 $109 $116 $101 $108 $98 $94 $80 $60 $40 $20 $ Source: Office of Management & Budget, Hacienda s budget reports, available in hop://www2.pr.gov/agencias/ogp/ 11

12 (3) More than 50 percent of authorized personnel posiqons in Puerto Rico s Tax AdministraQon are vacant Vacant, 2,864 Filled, 2,623 Source: PR Office of Comptroller General, Hacienda s Personnel Register, July

13 (3) Salaries paid by Puerto Rico Tax AdministraQon s are insufficient to aoract highly qualified tax compliance personnel PosiQons Average annual salary Tax examiners and collectors, revenue agents $25,530 Tax preparers $29,830 Economists $37,510 Financial examiners $38,320 Computer systems analysts $51,110 Computer and InformaQon Systems Managers $74,680 Source: US Bureau of Labor StaQsQcs, Occupa5onal Employment Sta5s5cs, May 2013 Puerto Rico Occupa5onal Employment and Wages, in 13

14 (4) Performance of Puerto Rico s Tax AdministraQon: Over- es9mated revenue proyec9ons Puerto Rico s tax administraqon has repeatedly over- esqmated tax revenue proyecqons, which has led to: 1) MulQple annual tax amnisqes and short- term deficit financings to cover unexpected budget gaps 2) A culture of tax noncompliance, since taxpayers have correctly esqmated that future tax amnisqes will result in tax savings 3) Systemic deterioraqon in the fiscal rules applicable to government agencies and corporaqons, which were given explicit authorizaqon to operate and to cover deficits with short- term financings, rather than preparing plans to operate with smaller budget resources. 14

15 (4) Performance of Puerto Rico s Tax AdministraQon: Tax AmnisQes and Budget Shordalls TAX AMNISTIES 2011 Ley 218 Ley para el Fortalecimiento de la Seguridad y Salud Pública 2012 Ley 64, expandiendo la Ley Ley 12, Ley Ponte al Día en el Pago de Contribuciones Adeudadas BUDGET SHORTFALLS...la insuficiencia de recaudos de Hacienda alcanzó $488 millones al 30 de junio de 2014 cuando se compara con el esqmado.... para el año fiscal en curso ( ), ya los recaudos del Fondo General están algo por debajo del esqmado. Fuente: Banco Gubernamental de Fomento, Declaraciones sobre situación de la autoridad de carreteras y transportación, 26 XI

16 5) Performance of Puerto Rico s Tax AdministraQon: Lack of long- term indicators of opera9onal performace Hacienda does not have a comprehensive set of reliable and consistent indicators of its performance over 9me, such as 1) The costs of tax collecqng 2) The movement of its tax accounts receivable 3) The outcome of tax audits 4) The economic and social benefits of tax expenditures (exempqons, deducqons, credits and other tax subsidies) 5) The fiscal risks of the tax administraqon and its strategies to miqgate them 6) The quality of its tax services reported by its clients 16

17 5) Performance of Puerto Rico s Tax AdministraQon Par9al results of tax audits show 50 percent reduc9on between 2009 and 2012 Cases of tax evasion Years? Results of tax audits: Tax confidence Qps received by Tax Adm Not reported ?? 2014??? Source: NoQcel, Hacienda falla en inves5gar la evasión contribu5va, 06/03/

18 Proposal to Improve Tax Compliance by the AssociaQon of CPAs of Puerto Rico Transfer the tax compliance func9on to an independent Ins9tute, Office, or Center of Tax Compliance, with sufficient budget resources to Hire qualified personnel Acquire and operate systems and informaqon to reduce tax evasion and improve tax compliance Analyze the budget costs of tax bills, and develop reliable tax esqmates Monitor the costs and results of tax expenditures Report regularly to the Legislature and the Public its acqviqes and results The Ins9tute will provide its tax consul9ng services equally to the Legislature and the Execu9ve The Ins9tute will be governed by an independent Board, with representa9ve from the Legislature, the Execu9ve, Tax Experts and Taxpayers Representa9ves Fuente:Autor y el Informe del Comité de Recomendaciones para la Recuperación Económica de Puerto Rico, CCPA de PR, 2014) 18

19 Appendix: (1) Puerto Rico s Hacienda: budget resources, 1997 to 2015 $300 millions $281 $250 $200 $180 $219 $181 $197 $198 $196 $190 $208 $195 $215 $193 $198 $187 $150 $134 $135 $146 $158 $157 $100 $50 $ Source: PR OMB, hop://www2.pr.gov/agencias/ogp/ 20- Dec- 14 José R. Oyola, Ph.D., CPA 19

20 (2) Total CollecQons, General Fund, 1997 to 2015 (millones) millions $10,000 $9,000 $8,000 $7,000 $6,000 $5,601 $5,000 $4,000 $3,000 $2,000 $1,000 $0 General Fund revenues minus excise tax on CFCs* Temporary excise tax on CFCs $6,962 $8,862 $6,792 $678 $7,678 $1, Source: PR OMB, hop://www2.pr.gov/agencias/ogp/ 21- Dec- 14 José R. Oyola, Ph.D., CPA 20