Act 60’s $14B tax breaks demand stronger oversight
A recent report highlights the special attention the Internal Revenue Service (IRS) has given to Puerto Rico’s tax incentives under Act 60. This report comes as the Puerto Rico Treasury Department released its annual report last June on forgone tax revenues from several Puerto Rico tax incentive programs, which prominently feature those under Act 60.
Separately, Democratic Sen. Ron Wyden recently denounced the founder of Pantera Capital for not cooperating with the tax evasion investigation, which alleges he may have used his Puerto Rican residency to evade federal income taxes.
This brings renewed attention to the benefits of Act 22 (now Act 60). In tax year 2024, according to the Treasury Department’s recent report, forgone revenues under Act 60 (2019) totaled $14.4 billion, of which $2.5 billion corresponded to Act 22 compared to $500 million in 2020.
Those corresponding to Act 20 amounted to $449.1 million. Forgone revenues from the Earned Income Tax Credit (EITC), which has a social purpose, were higher than those under Act 20, totaling $1.3 billion. Forgone revenues from exemptions and exclusions under the Sales and Use Tax (IVU) were higher, totaling $3.1 billion in that tax year.
There may be discrepancies in the magnitude of the tax benefits granted and the resulting tax revenue forgone. One way to examine this is through cost-benefit analysis and by considering whether the investment would occur without these incentives.
For example, estimates using the forgone revenue approach identify the financial benefit received by the individuals and businesses that benefit, but this does not necessarily mean there would be an equivalent increase in tax revenue.
In any case, the underlying message at this time, based on the above, is the need for greater local oversight to prevent tax abuses by some beneficiaries. If this perception persists at the federal level, concerns about its continuation would be valid.
Juan Castañer is senior economic adviser at Estudios Técnicos Inc.
