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Governor Announces Economic Tax Measures During PRMA Caucus


March 15, 2001
Copyright © 2001 CARIBBEAN BUSINESS. All Rights Reserved.

The two new tax incentives measures made public by Gov. Sila Calderon last week will benefit the textile industry and U.S. manufacturing companies that set up controlled foreign corporations in Puerto Rico.

Government agencies will now be required to purchase uniforms from apparel manufacturing companies established in Puerto Rico, according to an executive order signed by Gov. Sila Calderon and announced during the annual Puerto Rico Manufacturers Association’s Caucus with the Government, held at the Ritz-Carlton Hotel in Isla Verde.

The General Service Administration will supervise future uniform purchases made by public agencies on the island and make sure that the terms, conditions, and general bid instructions promote the participation of local apparel companies.

The governor was not able to specify how many industries would benefit from this measure. According to CARIBBEAN BOOK OF LISTS 2001, at least five companies from the top 10 largest apparel manufacturers in Puerto Rico produce uniforms. These companies are Olimac Manufacturing Corp., Pride America Garments, Ran-Jer Manufacturing Inc., Industrias Aguila Inc. and Pitirre Manufacturing Inc.

The second legislative initiative is an amendment of Internal Revenue Code Section 956. The measure is directed at controlled foreign corporations whose profits are tax exempt while they remain outside of the U.S.

Gov. Calderon proposes a 90% tax exemption for these companies in Puerto Rico, providing an attractive and competitive advantage for controlled foreign corporations to remain on the island, and attract new corporations.

"This measure gives us a competitive edge over foreign countries that offer lower wages and other attractive incentives to manufacturing companies. During my recent visit to Washington, D.C. I discussed this measure with Sens. Trent Lott and Don Nickels and Reps. Richard A. Gephardt and Charles B. Rangel, who seemed responsive to the initiative. My representatives in the federal city will continue presenting the initiative to other legislators and I will return to Washington, D.C. shortly to make presentations as well," said Calderon.

This legislative initiative would also allow companies operating under Internal Revenue Code Sections 936 and 30-A to restructure as controlled foreign corporations and benefit from the tax exemption. But their revenue must not exceed the benefits the corporation had under Sections 936 or 30-A.

These economic measures are part of Gov. Calderon’s new economic plan to incentivize the manufacturing industry. Among the legislative initiatives pending are increased tax credits for the purchase of local products; extending super deductions for training, research & development for companies with tax exemption decrees dated prior to the 1998 Tax Incentive Law; and offering additional incentives for local companies to go public through initial public offerings (IPO).

"Puerto Rico must remain competitive with the rest of the world. This country depends in large measure on manufacturing companies for its permanent jobs. While we depended on [Internal Revenue Code] Section 936 tax incentives, we were competitive. But when that benefit was eliminated, we stopped being competitive. Countries like Ireland, Singapore, and Malaysia that don’t have federal regulatory costs such as minimum wage, environmental laws and work conditions that we face in Puerto Rico, have an advantage to attract investment," said Calderon.

The Caucus with the government was attended by the heads of the departments of Labor and Human Resources; Treasury; Puerto Rico Electric Power Authority (PREPA); Ports Authority (PA); Puerto Rico Aqueduct and Sewer Authority; Puerto Rico Industrial Development Co.; and State Insurance Fund.

One of the meeting’s highlights was Prepa Executive Director Hector Rosario’s remark that the public utility will not be able to subsidize the electricity consumption for manufacturing companies due to its break-even financial situation. In turn, the Prepa would consider negotiating with companies who wanted to establish additional power sources as long as they provide energy to areas where it’s costlier for Prepa.

Ports Authority Executive Director Miguel A. Pereira also announced that improvements to the Panamerican Dock in Puerta de Tierra had begun. The dock will accommodate larger Eagle Class ships that will start to visit the island in October. Pereira also said that Aguadilla’s Rafael Hernandez Airport would not be privatized, but rather developed with participation from private investors.

Ports is studying land use at Isla Grande airport and whether another type of economic activity would be better suited for this high-value area. The agency will also look into federal funds available to create a municipal airport police force in Carolina to provide security at Luis Muñoz Marin International Airport.

This Caribbean Business article appears courtesy of Casiano Communications.
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