INSIGHT-Desperate for taxes, Puerto Rico tries to get grip on underground economy

miércoles 9 de abril de 2014 01:00 GYT

By Luciana Lopez

LARES, Puerto Rico, April 9 (Reuters) - Mattress maker Angel Lopez is both a problem and an opportunity for the Puerto Rican government.

His one-man business works off the books as part of a vast underground economy, which doesn't directly pay into the treasury's coffers and is a major headache for an impoverished island that is $70 billion in debt.

But Lopez has dreams the island's leadership is eager to foster. He wants to open a small factory, hire a few people and register with the town of Lares - as long as the taxes and fees from going above board don't choke off his business.

The Lopez dilemma is playing out across Puerto Rico, which is a U.S. territory in the Caribbean. From the western mountain town of Lares to the capital San Juan, officials are wrestling with how to bring the underground economy out of the shadows and onto the tax rolls without creating such an onerous financial burden that thousands of small and medium businesses can't survive.

More than a quarter of the island's economy is informal, some studies say, from large companies evading taxes to individuals selling items for cash at roadside stands. But estimates vary widely because the activity can be so hard to track.

While not new, the problem has become urgent of late. The government desperately needs to find new revenue to bolster a budget full of holes and turn around an economy now eight years in recession. It is scrambling to avoid a painful debt restructuring some view as almost inevitable.

Last month's $3.5 billion bond sale bought the island some time, but precious little else, with fundamental worries about its shrinking economy still unsolved.

"The government here, they want you to pay here, pay City Hall, pay the Hacienda," said Lopez, referring to the local name for the island's Treasury department.   Continuación...