Puerto Rico turns to lottery to light up gray economy

Tue Aug 7, 2012 10:17am EDT
 
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By Michael Connor

(Reuters) - Instead of just fries, Veronica Rodriguez got a free automobile with her meal at a Burger King in Corozal, a mountain town in Puerto Rico.

For Betzaida Pacheco Rosado, a free car came after a visit to a Supercuts hair salon in the San Juan suburb of Bayamon.

Both won their cars with numbered shop receipts used in Puerto Rico's fledgling government lottery aimed at food-cart sales and other tiny cash transactions in the Caribbean island's untaxed $14 billion gray economy.

Urgently looking to boost revenue after six years of recession, government officials hope the island's sales-and-use tax lottery -- or IVU (impuesto sobre ventas y uso) Loto, as it is called in Spanish -- will jump-start collection of sales taxes, which came in below expectations in the fiscal year ended in June.

The IVU Loto automatically enters shoppers in twice weekly cash draws for as much as $25,000, as well as car raffles, and is just a single prong of a government campaign to get more revenue from Puerto Rico's 7 percent sales-and-use tax.

The campaign matters beyond Puerto Rico, a U.S. commonwealth with a 15 percent jobless rates, a dwindling population, and an outsized $68 billion of outstanding municipal bonds that have been hit by a flurry of ratings cuts.

Though often rated as barely investment grade, Puerto Rico bonds carry high, tax-free interest payments and are a favorite of American investors, who are increasingly voicing worries about the island economy's ability to generate revenue and re-pay debts.

The IVU Loto, which was rolled out in a significant way only over the past year, is slowly sinking into Puerto Rico's daily life. Its appeal is more akin to coupon clipping than the passions engendered by Puerto Rico's two existing lottery systems, whose drawings are local media events and occasionally offer purses worth millions.   Continued...

 
A customer checks the IVU Loto on his printed receipt at a coffee shop in San Juan July 31, 2012. REUTERS/Ana Martinez