The implementation of an Incentive Code that promotes economic development in Puerto Rico, in an accountability framework, can be an important ally in the effort to overcome the fiscal instability that keeps the island trapped in economic stagnation.
It is also important to address the lack of reliable performance indicators for tax benefits granted to several entities for years. Tax incentives should significantly boost the economy.
Companies whose retention strategies and operations do not depend on tax exemptions or any other tax benefit should not be granted redundant incentives.
Incentives should be directed to development proposals that would not achieve that goal without these benefits.
In this context, it is a good step for the government to consider an analysis of the benefits and costs of tax incentives.
Such an analysis should be a systematic practice to extend or limit tax benefits. Logic and prudent decisions that bet on growth must guide the tax incentives process.
Transparency is also essential in this process that is key to build confidence and prove that government efforts have a genuine potential to create jobs and positive economic activity.
The Secretary of Economic Development and Commerce acknowledged that citizens should know how much the government is spending in tax credits and preferential rates to boost the economy. The commitment also implies disclosing which entities receive these benefits.
According to the Department of Economic Development and Commerce estimates in the bill, incentives programs represent a total fiscal cost of $ 7. 462 billion, of which 81 percent is considered the cost of opportunity. This information excludes an analysis of Return on Investment of those aimed at addressing social issues since profitability is not their purpose.
It is important for the legislation to present an annual report on the incentives approved or those to be granted. That responsibility would be entrusted to Economic Development and Commerce.
The proposal should be thoughtfully considered since it involves amending dozens of laws to attract investment and create jobs. Adjustments should seek consistency in and uniform metrics. The new Code must be precise.
The legislature must ensure clear eligibility criteria and should also evaluate emerging companies and community organizations that bring new development proposals.
A new Incentive Code should also consider market changes to determine the types of companies that deserve priority in line with Puerto Rico´s interests.
Return on investment is a key point in the evaluation process since it´s been ignored in the past and that may have affected the island´s economic and social growth. It is important to verify that entities that have been granted incentives have indeed improved their performanceamong other indicators that benefit the organization and the island.
A good Code implies a balance of benefits for Puerto Rico, and for local or foreign companies with tax credits or exemptions. It means promoting a healthy business environment that will allow more entities to be settle on the island.
Puerto Rico lost at least 180,000 jobs over the past seven years. An Incentive Code focused on a thoughtful analysis of the new local scenario can help regain competitiveness in the Caribbean region within the global scenario.
We hope that the legislative process will lead to an Incentive Code that will be strictly enforced to drive the island´s recovery.