DDEC defends ‘positive’ incentives laws at hearing

By The Star Staff

Puerto Rico’s Economic Development and Commerce Department (DDEC) defended Acts 20 and 22, which grant tax incentives for the export of services and for high-net individual investors, at a Senate Treasury Committee hearing on Monday.

The hearing involved a probe of legislation by Puerto Rican Independence Party Sen. María de Lourdes Santiago, who wants to repeal the laws, which were incorporated into a Tax Incentives Code.

“Studies have shown that these laws have been positive for the economy of Puerto Rico,” noted Carlos Fontán, executive director of the Office of Business Incentives at DDEC. “They provide economic activity that we may not otherwise get. Repealing these laws would give the false impression that Puerto Rico is not open for business.”

Act 20 of 2012 provides incentives to companies exporting services from Puerto Rico that include a 4% fixed tax rate. These services include research and development, and creative industries. Act 22 of 2012, the “Act to Promote the Relocation of Individual Investors to Puerto Rico,” grants tax exemptions for the investment income earned by individuals who become residents of Puerto Rico.

A study commissioned by DDEC found that Acts 20 and Act 22, as well as Act 273, the International Financial Center Regulatory Act, have been modest but effective.

“We do not recommend the repeal of Acts 20, 22 and 273. Rather, we recommend reforming these policies to maximize their potential,” noted the study conducted by Econometrika Corp., which is headed by José Caraballo Cueto, an economist and University of Puerto Rico professor.

The study found that from 2012 to 2017, the laws created some 36,622 jobs, or spurred a 3% hike in employment, and had a total production of 2%.

Some Treasury Committee senators criticized DDEC for failing to supervise whether the individuals and companies taking advantage of the incentives are investing on the island or creating jobs. Keith St. Clair, an Act 22 grantee, announced in 2012 more than $200 million in investments for the island. Six years later, the four hotel projects and a film district he promised have either not begun or are unfinished, according to published reports.

There were also concerns about the types of individuals getting incentives. For instance, Act 22 beneficiary Hamed R. Wardak was investigated in 2010 by the U.S. Congress for allegedly paying Taliban insurgents with money from a contract with the U.S. Department of Defense.

While answering a question from Citizen Victory Movement Sen. Ana Irma Rivera Lassén, Fontán said that ideally the laws should attract investors for the areas of manufacturing, hotels and farming activities. But Act 22 investors work in the areas of consulting, research and development, call centers, advertising, computer program development, auditing services and educational services.

Fontán also said DDEC has begun the process of supervising the tax decrees and has informed 1,086 individuals about possible non-compliance. The department has begun the process of ensuring these investors submit annual audited reports, which many have not done.

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