Op-Ed: Negative impact of ongoing changes to incentive programs
As one of the early applicants under Laws 20 and 22 of 2012, I can attest there was a certain apprehension towards potential changes to the laws that supposedly would be immutable. There was a perception that government had a history of changing the game and not honoring the letter, and even more important the spirit of the law.
Even if laws were attractive, they could be changed on a whim.
Said perception has been confirmed throughout the history of changes and amendments to requirements of laws 20 and 22, which are now part of law 60 of 2019. In 2013 three full-time employees were required for decrees, although initially it was zero. Then such requirement changed to five employees. Then back to three.
Later, an Act 22 recipient had to buy real estate. Then it was reversed, then added back. Then there was a law 22 requirement of donating $5,000 annually to a local charity, which I supported, then changed to $10,000 but with donations going only to a politically favored list.
Another related change happened a couple weeks ago through a minimum 1% Mansion Tax enacted by the Municipality of Dorado. Such tax applied on real estate transactions of $1 million or more, targeting certain residential areas, even after the Mayor asked us to help contribute to a safety fund, which we agreed to do.
Then as soon as last Friday another change happened, spearheaded by Rep. Tony Soto through House Bill 2419. A 200-page bill contains significant last-minute amendments to the PR IRC just days ahead of important due dates.
There, two pages buried another change: now all Law 22 and 60 recipients must pay an annual processing fee of $5,000, instead of the $300 fee that currently applies. This is just a hidden new tax, not a legitimate filling fee which changes our contract with the government if not in letter, but spirit of the law.
Changes are always a concern when evaluating the competitiveness and the credibility of a business jurisdiction. If made, changes would have to be legally prospective (applying to new grants only) in nature, since they must protect existing agreements.
These governmental practices undermine the credibility of incentives programs for present and future investors and entrepreneurs.
Constant changes risk the ongoing impact of the tax incentives programs, which represent an economic force on the island. Specifically, laws 20 and 22 have created more than 40,000 direct and indirect jobs worth almost $1 billion annually in salaries to Puerto Ricans, at least $1.2 billion in investments, $250 million in annual tax revenues, and more than $650 million in personal real estate purchases, among other significant metrics.
Puerto Rico’s attractiveness as a business jurisdiction will be jeopardized as a result of continued constant changes to its tax incentive programs.
It is imperative to implement consistent governmental practices honoring agreements reached with its constituents and not risk the most important program on the island since the repeal of Section 936 which took away all the pharmaceutical jobs away and sent them offshore for more favorable jurisdictions.
The same can happen here if we are not vigilant about protecting the sanctity of our agreements.