By The Star Staff
Resident Commissioner Jenniffer González Colón, a primary candidate for the New Progressive Party (NPP) nomination for governor, on Sunday rejected government plans to give preferential treatment to LUMA Energy contractors as part of amendments to Puerto Rico’s incentives law.
González Colón in a written statement asked Gov. Pedro Pierluisi Urrutia to immediately reverse what she characterized as a disastrous proposal.
“Once again, the governor puts [electrical transmission and distribution system operator] LUMA’s interests above the people and municipalities,” she said. “No contractor or subcontractor of an agency or municipality is exempt from paying construction fees and taxes.”
“Why exempt contractors from LUMA, a company with a history of hiring subsidiaries and related companies?” the resident commissioner added. “How does this decree benefit our people? This measure takes $600 million from the municipalities that use it to offer essential services to the people.”
“Here, the only one who benefits is LUMA, without anything in return that favors our people. It’s as simple as that,” González Colón said. “I call for all procedures in favor of the granting of this decree to be immediately paralyzed.”
In recent weeks, the Department of Economic Development and Commerce (DDEC by its Spanish acronym) has circulated to municipalities a draft decree under Act 60 of 2019, known as the Tax Incentives Code, that would provide LUMA with a series of tax benefits under the provisions applicable to businesses dedicated “to the production or sale of green energy on a commercial scale for consumption.”
The benefits listed in sections 2071 and 2072 of the incentives code include a 4% preferential rate on “green energy income” and exemptions of 75% on real and personal property, 50% on municipal license payments established by ordinances and 75% by construction taxes.
The Puerto Rico Mayors Association, comprising Popular Democratic Party mayors, has publicly objected to the exemptions, which would exempt LUMA contractors from paying business taxes, known in Spanish as “patentes,” to municipalities. PREPA already has an agreement with towns based on contribution in lieu of taxes, known as CELI.
The Mayors Federation, which groups NPP mayors, said the move will take away some $604 million from municipalities.
DDEC Secretary Manuel Cidre Miranda said that although the agency is seeking the tax incentive for LUMA, “it is necessary to clarify that it has not been approved.”
“At present, this is in the process of interagency and municipal evaluation, as established by law,” he said. “Likewise, we clarify that contractors and subcontractors of Public-Private Partnership entities conducting work on the electrical network have to pay taxes and licensing fees to the municipalities without any exemption.”
Tax incentives are an important economic development tool, for promoting new investments, increasing the competitiveness of local companies, and attracting capital, among other objectives. However, when the incentive request does not comply with some of those objectives, proceeding with the incentive could be counterproductive, Cidre Miranda said.
The news comes a month after the DDEC chief said the Internal Revenue Service announced that it was investigating Puerto Rico’s exemptions to individual investors, known as Act 22, which is now part of the Incentives Code.
“The important thing about all this is that Puerto Rico, like the United States, is a country of law and order,” he told a New York publication. “Here everything is out in the open, and any information they need from any of our … decrees in the Department of Economic Development we are always eager to give it to them.”
Cidre Miranda defended the agency’s effort in supervising Law 22 under the argument that there has been an increase in the revocation of decrees in recent years.