The stability of income sources that feed public funds is essential for Puerto Rico to recover from the Hurricane and implement the five-year plan designed to balance the island's finances.
Currently, the four percent tax that foreign companies operating on the island pay represent a significant contribution to the local Treasury. These tax collections total about $ 1,9 billion per year, under Law 154- 2010.
In essence, the tax contributed by this business sector represents almost a fifth of the income through which the government provides services and carries out projects to promote economic activity. In turn, these companies receive credit on their federal income forms for the contribution made to the island.
This federal credit contributes to jobs preservation in the industrial sector, which is undoubtedly a significant component of the future reconstruction agenda.
Thus, it was appropriate that the Treasury Department -which includes the Internal Revenue Service- told the Puerto Rico Treasury Secretary, Teresita Fuentes yesterday that, at the moment, they do not intend to eliminate credit to foreign businesses based on the island. This incentive is not conceived as permanent. The Treasury indicated that it is under evaluation. The expectation is for it to end in 2019.
It is in Puerto Rico's interest to ensure the stability and consistency of the sectors that have historically contributed to its economy, not only through jobs creation, but also specialized positions that are among the best paid.
Eliminating credit, especially without a healthy transition or an equivalent substitute, would increase the cost of doing business on the island. It would make the Puerto Rican industrial sector less attractive and competitive. In addition, let´s recall that Puerto Rico was not included as domestic jurisdiction in the new federal tax reform. This has the potential to create uncertainty in multinational companies based in Puerto Rico and, thus, in the local economic activity.
The credit generated by Law 154, designed to compensate for the Treasury plummeting income, has proven its effectiveness.
Governor Ricardo Rosselló said he is consulting with the federal government about possible new measures to benefit Puerto Rico's finances. It is desirable for these conversations between the local government and the Treasury to contribute to maintain the income flow that the island´s Treasury needs to achieve the fiscal plan commitments.
The Puerto Rican government is considering structural reformulations that include a tax reform that does justice to taxpayers. To achieve this, it is necessary to maintain the stability of the different tax sources, including the industrial sector contribution.
The business sector must ensure that its voice is heard in the dialogue with the Treasury on current credit and other future incentives for Puerto Rico as an industrial market.
The certainty of the federal tax framework for foreign activity based on the island contributes to an income flow that brings stability to the fiscal crisis reality accentuated by Hurricane Maria. The goal is to boost the Puerto Rican economy with a balanced budget and the eventual return to capital markets, with the fiscal plan as tool and guide.
Walking in the opposite direction would send the wrong message to investors who continue to trust in Puerto Rico. That trust, far from weakening, has to shine for the benefit of Puerto Rican workers.
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