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What Else In The Economic Development Pipeline?


July 12, 2001
Copyright © 2001 CARIBBEAN BUSINESS. All Rights Reserved.

Five months after the announcement, the Calderon administration is yet to formalize the engagement of former U.S. Secretary of State Henry Kissinger and former Federal Reserve Chairman Paul Volker to help design an economic development model for Puerto Rico into the 21st century.

"I have met with different consultants, among them Paul Volker and Henry Kissinger, to discuss how to best develop an economic blueprint for the next 20 to 25 years for Puerto Rico. This is not something to take lightly and it must have a good structure. We hope to have the group constituted by the end of the year," said Economic Development and Commerce Secretary Ramon Cantero Frau. "But we haven’t signed a contract yet."

That’s not stopping the Calderon administration from articulating a four-pronged "New Economic Agenda for Growth."

  • Lower Taxes: commitment to make full use of Puerto Rico’s fiscal autonomy to enact tax reduction measures to spur economic activity.
  • Simplify permitting process
  • Reduce cost of doing business
  • Federal tax incentives primarily to help primarily the manufacturing sector (See main story.)

Legislation was already approved earlier this year to reduce capital gains taxes from 20% to 10%. Also, Gov. Sila Maria Calderon recently announced the elimination of 40 steps from the typical government permits process.

Other measures are still pending submission to or awaiting action from the Puerto Rico Legislature. Among them are the extension of super deductions for training, and research & development for companies that filed their tax decrees prior to the 1998 Tax Incentive Law revision; tax deductions on new equipment and machinery over a one- or two-year period; and tax incentives for individuals who establish science & technology e-Businesses in Puerto Rico.

Also pending is improving the REIT (real estate investment trust) law to encourage REIT creation in Puerto Rico--including a 10% tax rate on taxable allocations; creating a Puerto Rico Board of Economic Consultants and a Commonwealth Office of Statistics; and increasing credits for locally manufactured product purchases from 10% to 20% and products made from recyclable materials from 15% to 25%.

Cantero expects these measures to be approved this year.

Despite the absence of Kissinger and Volker, plans are also underway to constitute the group of economic development experts who will design a 20-year plan for Puerto Rico.

One of the group’s priorities will be to rework the whole structure of Puerto Rico’s economic development incentives–including the 1998 Tax Incentives Law–to take into account the enormous positive impact of the possible adoption of the governor’s Section 956 proposal.

"The entire law will have to be rethought and adjusted to this new situation. For example, we should be able to give a venture company that brings an innovative product to manufacture in Puerto Rico 0% tax rate for 10 years, similar to what Singapore does.

"We have the fiscal autonomy to change local laws in order to make them attractive to our economic partners. Right now, there are more than 15 economic development concepts that are being studied at different law firms in the island. As soon as we are ready, we can set the legislation in motion," said Cantero.

This Caribbean Business article appears courtesy of Casiano Communications.
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