Bipartisan opposition to Senate bid to amend Acts 20/22
A group of former secretaries of the Department of Economic Development and Commerce (DDEC, in Spanish) and the Puerto Rico Industrial Development Company (PRIDCO) from the two main political parties filed testimonies against Senate Bill 684, which seeks to increase taxes and once again change Acts 20/22 to attract capital to Puerto Rico.
The Treasury Department and the Puerto Rico Economic Development Bank also opposed the Senate bill.
“We strongly oppose Senate Bill 684. Acts 20/22 (Act 60-2019) have created more than 40,000 jobs, more than $2.5 billion in new investment and cost Puerto Rico nothing,” said former DDEC Secretary Antonio Colorado in his written testimony.
“The export of services cannot be separated from the attraction of resident investors. Separating them is a fundamental mistake. A DDEC study from 2021 has made the serious mistake of separating both laws,” he said.
“The report ignores that the incentives contained in Act 20-2012 were not what changed in 2012 and generated 40,000 jobs by itself; what changed was the new creation of Act 22-2012. But, unfortunately, the report by Economist [José] Caraballo-Cueto is what has served as the foundation and guide to draft this bill,” Colorado stated.
The arguments against the bill were submitted to the Senate’s Economic Development, Essential Services and Consumer Affairs Committee and the Fiscal, Federal Affairs and Financial Oversight Committee, chaired by Sen. Gretchen Hau and Juan Zaragoza, respectively.
In his testimony, Colorado argued that the concept of exporting services has been in Puerto Rico’s legal system since the Industrial Tax Incentives Act of 1987. However, in Fiscal 2012, the DDEC Incentives Office had a record of less than 50 service export decrees in a period of approximately 25 years.
This even though the maximum tax rate was 3.9% on net export income when the 90% exemption provided by the 1987 Incentives Act was taken into consideration, he said.
“In Fiscal 2012, the government sought to encourage the export of services and it was believed that benefits on passive income (which eventually ended up being Act 22) would attract the export of services. Using the 4% rate of Act 20 alone would not generate the interest of people to move to Puerto Rico,” Colorado stated.
“Instead, setting the rate at 0% for passive income and maintaining 4% for the export of services has proven to give the expected results of increasing the export of services from Puerto Rico. In a period of nine years (with hurricanes, earthquakes, and pandemics) more than 3,000 service export decrees have been generated,” he said, noting that it represents a 6,000% increase.
“These data are clear evidence that both laws complement each other and should be marketed jointly to move the service export sector and attract investors to the Island at a time when Puerto Rico is bankrupt and has no access to capital,” Colorado said.