SAN JUAN, Puerto Rico (AP) — Puerto Rico implemented a new tax yesterday that will drive up prices of professional service, though economists warned it would lead to even more business closures and raise the cost of living for islanders struggling through a worsening economic crisis.

The four per cent tax applies to the supply of services between businesses, as well as to certain services offered by companies that generate more than US$50,000 a year. Among the companies expected to be affected are those that employ surveyors or architects.

It affects only companies that were exempt from an already established seven per cent business-to-business tax. By April of next year, that tax will go up to 10.5 per cent and all businesses will be required to pay that figure.

US$72 billion public debt

The government says it is running out of funds and it’s pushing to restructure a US$72 billion public debt, but critics say the tax will hamper economic growth.

“At the end of the day, consumers will pay the price because businesses will pass along the cost,” said economist Vicente Feliciano.

Ralph Kreil, president of Puerto Rico’s Association of Engineers and Surveyors, said the tax would lead to the closure of offices, drive up prices and encourage expansion of the informal sector that avoids paying taxes. He said 40 per cent of construction in Puerto Rico is done informally, and that the number will grow, leading to more dangerous construction.

The new tax was approved just months after the government increased a sales and use tax to 11.5 per cent.