Dr. Juan Lara
The San Juan Star, Viewpoint, March 20, 2008
There is growing consensus around the world that relying primarly on preferential tax rates for industrial promotion is a thing of the past. (The key word is "primarily",since very few people argue that there oughtn/t be any tax incentives at all.)
The trend is to substitute non-tax incentives for tax breaks, providing grants for strategic investment and partnering with pioneering firms in innovation-driven initiatives. A low-tax environment is increasingly seen as a necessary complement to such non-tax incentives, but not as the centerpiece of a country's development strategy.
More and more people in Puerto Rico are convinced that this should be our approach to industrial development from this point onward. But we seem to be trappedin a Catch-22: to provide more non-tax incentives we need to raise more tax revenues, which implies, among other things, increasing tax rates for companies that have come to expect near-total tax exemption. If we raisetaxes, they might choose to move operations elsewhere, but if we don't, we might never be able to provide the sort of incentives that will make it worth their while to stay for the longer haul.
Sounds like a lose-lose situation. But it doesn't have to be. Instead of a Catch-22, what we face is more of a trade-off: companies can trade a small portion of their tax benefits for a new type of better designed incentives that hopefully will give Puerto Rican taxpayers more bang for their buck. Like all trade-offs, this one presumably involves different possible combinations of more of-this-for-less-of-that. The trick is to find the optimal combination, but that should not be too difficult for well meaning negotiatiors in the government and the private sector.
In an ideal world, the companies themselves would have proposed this sort of a trade out from enlightened self-interest. They haven't thus far -as far as we know- but they could still do it before the special comitte working on the industrial incentives law sends its draft of a bill to the Legislature. What we do know from press reports is that they agreed to leave the tax issure for the end-stretch of their six-month mission.
The committee's private-sector spokesmen have said repeatedly that they want to draft the best incentives law in the world. One hopes that they don't think don't think the best law to be the one with the lowest tax rates in the world. To be competitive in this regard, one n needs to keep tax rates somewhat below those of competing countries, but there's no need to go way lower than that.
The best law is the one that pinpoints the optimal trade off between tax and non-tax incentives. It may not be feasible to get to that optimal tradeoff point in one leap, but the law can be designed to take us there in steps. The important things is to signal the will to move in that direction by taking the very first step.
In the final analysis, what really matters is creating an environment on the island that is conductive to the emergence and growth of new competitive businesses. All sorts of companies must be able to thrive an dinteract in a healthy business. All sorts of companies must be able to thrive and interact in a healthy business environment -large and small, high-tech and low-tech- to create jobs that our economy needs so badly. This requires, among other things, low taxes for all good business , not just fro Pridco-promoted firms.
People often confuse competitiveness with cutting-edge technologies and the "knowledge economy," but there are competitive firms from all walks of conomic life. Take Danish butter cookies. They sell all over the world, even though they are a low-tech goodie produced by highly paid workers in a country with comparatively high corporate tax rates. Something is definitely not rotten in the state of Dernmark.
As we face the tradeoff between tax and non-tax incentives, we need to keep track of competitive policies in countries like Ireland and Singapore, which have bested us in the design and application o fincentives an din the creation of a fertile business environment. But those are not the only relevant benchmarks, just like high-tech and biosciences are not the only relevant target industries. We would do well to learn how that Danish cookie cumbles.
http://www.advantagepr.net/
The San Juan Star, Viewpoint, March 20, 2008
There is growing consensus around the world that relying primarly on preferential tax rates for industrial promotion is a thing of the past. (The key word is "primarily",since very few people argue that there oughtn/t be any tax incentives at all.)
The trend is to substitute non-tax incentives for tax breaks, providing grants for strategic investment and partnering with pioneering firms in innovation-driven initiatives. A low-tax environment is increasingly seen as a necessary complement to such non-tax incentives, but not as the centerpiece of a country's development strategy.
More and more people in Puerto Rico are convinced that this should be our approach to industrial development from this point onward. But we seem to be trappedin a Catch-22: to provide more non-tax incentives we need to raise more tax revenues, which implies, among other things, increasing tax rates for companies that have come to expect near-total tax exemption. If we raisetaxes, they might choose to move operations elsewhere, but if we don't, we might never be able to provide the sort of incentives that will make it worth their while to stay for the longer haul.
Sounds like a lose-lose situation. But it doesn't have to be. Instead of a Catch-22, what we face is more of a trade-off: companies can trade a small portion of their tax benefits for a new type of better designed incentives that hopefully will give Puerto Rican taxpayers more bang for their buck. Like all trade-offs, this one presumably involves different possible combinations of more of-this-for-less-of-that. The trick is to find the optimal combination, but that should not be too difficult for well meaning negotiatiors in the government and the private sector.
In an ideal world, the companies themselves would have proposed this sort of a trade out from enlightened self-interest. They haven't thus far -as far as we know- but they could still do it before the special comitte working on the industrial incentives law sends its draft of a bill to the Legislature. What we do know from press reports is that they agreed to leave the tax issure for the end-stretch of their six-month mission.
The committee's private-sector spokesmen have said repeatedly that they want to draft the best incentives law in the world. One hopes that they don't think don't think the best law to be the one with the lowest tax rates in the world. To be competitive in this regard, one n needs to keep tax rates somewhat below those of competing countries, but there's no need to go way lower than that.
The best law is the one that pinpoints the optimal trade off between tax and non-tax incentives. It may not be feasible to get to that optimal tradeoff point in one leap, but the law can be designed to take us there in steps. The important things is to signal the will to move in that direction by taking the very first step.
In the final analysis, what really matters is creating an environment on the island that is conductive to the emergence and growth of new competitive businesses. All sorts of companies must be able to thrive an dinteract in a healthy business. All sorts of companies must be able to thrive and interact in a healthy business environment -large and small, high-tech and low-tech- to create jobs that our economy needs so badly. This requires, among other things, low taxes for all good business , not just fro Pridco-promoted firms.
People often confuse competitiveness with cutting-edge technologies and the "knowledge economy," but there are competitive firms from all walks of conomic life. Take Danish butter cookies. They sell all over the world, even though they are a low-tech goodie produced by highly paid workers in a country with comparatively high corporate tax rates. Something is definitely not rotten in the state of Dernmark.
As we face the tradeoff between tax and non-tax incentives, we need to keep track of competitive policies in countries like Ireland and Singapore, which have bested us in the design and application o fincentives an din the creation of a fertile business environment. But those are not the only relevant benchmarks, just like high-tech and biosciences are not the only relevant target industries. We would do well to learn how that Danish cookie cumbles.
http://www.advantagepr.net/
