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  • Writer's pictureThe San Juan Daily Star

PDP seeks new federal tax incentive for manufacturing

Senate President José Luis Dalmau Santiago

By The Star Staff

Since last year, the Popular Democratic Party has been lobbying in the U.S. Congress for a federal tax incentive to stimulate investment in Puerto Rico and establish manufacturing industries in nanotechnology, aerospace, pharmaceuticals, semiconductors and medical devices.

The announcement comes after Puerto Rico was not considered by Congress in an incentive to attract chip manufacturers to the island.

Senate President José Luis Dalmau Santiago on Thursday stressed the urgency of the measure, stating that the effort to push it through Congress began last year and is now at a critical stage, with the aim of securing the support of Democrats and Republicans in the coming days or weeks.

“Since last year, we have been promoting the filing of a credit-for-investment measure that achieves the return of multiple industries that left the island,” the Senate president said. “After the experience of the COVID-19 pandemic, the United States government has realized that the supply and production chain for the United States is better protected by locating these industries in the jurisdiction of the Commonwealth of Puerto Rico instead of leaving them in countries like Singapore or China.”

Dalmau Santiago said that since 2023 the island Senate has recruited a group of experts on the federal tax issue. The experts have worked in Congress to design a new investment model that promotes the creation of jobs and capitalizing the island’s banks to stimulate the economy.

“After evaluating different mechanisms to attract investment and achieve relocation, we identified that this is the ideal one to fully take advantage of the experience of using Investment Tax Credits (ITC) and, consequently, facilitate a faster movement of supply chains from Puerto Rico instead of less secure and distant places … such as China, India, and Singapore,” Dalmau Santiago said.

The model would be established by amending Section 48 of the Inflation Reduction Act (IRA), which recognizes investment credits. This type of credit, which has been used to develop renewable energy projects, has a proven track record of encouraging both investment and employment in the jurisdictions in which it has been established.

“There is a significant number of economic analysis reports that support the efficiency of this type of credit since this type of tax model has a multiplier effect because for each dollar of investment, the credit generates more than $1.30 of private investment,” the Senate leader noted.

The proposal includes a 40% ITC credit rate, which is on par with certain ITC credit rates available under the IRA, and would serve as a strong incentive for investment in the aforementioned critical supply chains in Puerto Rico.

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