Ley 167 del 2001

(No. 167)

(Approved December 1, 2001)

AN ACT

To add Section 1040F to Subchapter A of Act No. 120 of October 31, 1994, as amended, known as the "Internal Revenue Code of Puerto Rico of 1994," in order to grant a tax credit to businesses that procure agricultural products produced or harvested in Puerto Rico in substitution of imported products.

STATEMENT OF MOTIVES

The agricultural sector is of singular importance for the Commonwealth of Puerto Rico. In acknowledgement of said importance, it has been establish as public policy, to give the highest priority to agriculture in all matters of Government and of its instrumentalities, political subdivisions, municipalities and public corporations.

To achieve the stability of the economic system it is necessary for the agricultural sector to achieve optimum development. In harmony with the abovementioned public policy, it is pertinent for the State agencies to stimulate and promote the consumption of Puerto Rican agricultural products as a means to develop a strong and healthy agricultural economy.

The average gross income in Puerto Rico for the past five (5) years is $614,441,600.00, consisting mainly of agricultural products, with an annual tax of approximately $400 million, with approximately $200 million produced in produce. In these same categories, we imported approximately $632 million and $116 million, respectively. We consume over $4 billion in imported foods, that could be the source of approximately 160,000 jobs in Puerto Rico. The

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Department of Agriculture Statistics show a decline in the agricultural sector in the past few years. We have lost thousands of adjusted gross income tax dollars in Puerto Rico, and approximately 40,000 farm employees have become unemployment statistics in the last few years.

The increase in the production and marketing of Puerto Rican agricultural products shall generate more agricultural and agro-industrial jobs. The increase in agricultural products production and marketing, in turn, reduces the costs paid by consumers for fresh high-quality products. It is the function of the Government of the Commonwealth of Puerto Rico and its instrumentalities, in its mission to comply with the public policy of giving the highest priority to agriculture, to promote the marketing and consumption of local fresh and industrialized agricultural products.

In the last eight years, gross agricultural product and agricultural employment in Puerto Rico were dramatically reduced. The invasion of imported products has reduced the presence of Puerto Rican agricultural products offered to consumers, as well as the acquisition by those businesses that serve foods to consumers. The lack of programs to stimulate or give incentives for making Puerto Rican agricultural products available to consumers, has been one of the factors that have caused the decrease in agricultural production. It is necessary to stimulate establishments such as stores, businesses, supermarkets, as well as fast food chains and restaurants which sell ready-cooked products, and others, to preferably make local Puerto Rican agricultural products available to consumers. This, besides complying with the public policy and purposes mentioned above, helps to substitute imports for local produce.

Achieving an increase in the consumption of Puerto Rican agricultural products represents a positive change from any point of view. Thus, without the altering the

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interstate commerce legal system, the fair competition of local products is promoted, are supporting Puerto Rican farmers, and fresher better quality products are delivered to our consumers, creating thousands of jobs, while stimulating our own instead of a foreign economy.

It is noteworthy, from a real and human perspective, that the men and women that work in agriculture to this day, who compete against the offerings of foreign giants, represent entire families of fellow-countrymen that, in turn, employ other Puerto Ricans in agricultural occupations, feeding their children with their labor, and reproducing in them the desire to earn their living with the sweat of their brow, and achieve prosperity through their daily efforts. From the economic point of view, which is colder, these Puerto Ricans contribute to our economy while they save their funds in our banks and cooperatives, invest their money in our lands and their taxes and those of their employees go to our treasury instead to foreign treasuries, and from there to our schools, hospitals, highways and public works and services in general. Furthermore, these Puerto Ricans do not represent a burden to the State, but rather, a source of jobs, thus unburdening the State, as well as helping the development and implementation of public works and services.

In view of the challenge that we Puerto Ricans of the $21^{ ext {st }}$ Century have set for ourselves, we have before us the need and the obligation to create more and better jobs, and thus promoting the orderly development of our economic environment, it is necessary to provide incentives for the consumption of Puerto Rican agricultural products. This is the only way that we can achieve balance and order in the growth of our economy, hand in hand with matters equally important, such as manufacturing and construction.

This Legislature, as a measure to promote and develop the agricultural sector in Puerto Rico, has decided to grant a tax credit to businesses, which shall be awarded

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to increase agricultural production, by products produced and processed in Puerto Rico. The approval of these amendments to the Internal Revenue Code of Puerto Rico of 1994, shall allow the Secretary of Agriculture, along with the Secretary of the Treasury to establish adequate mechanisms to stimulate the commercial and agricultural sectors in Puerto Rico. By stimulating these sectors, we promote the general economic development of Puerto Rico and stimulate the creation of jobs in the agricultural sector. This measure is in harmony with the public policy of this Government, implemented by the Department of Agriculture, addressed to stimulate and promote the consumption of Puerto Rican agricultural products, as a means to develop a strong and sustainable agricultural economy.

Therefore, in harmony with the new and fair public policy, a program destined to stimulate an increase in the consumption of Puerto Rican agricultural products by granting tax credits to those persons or entities that increase the use of these products, make them available or to be sold to consumers.

BE IT ENACTED BY THE LEGISLATURE OF PUERTO RICO:

Section 1.- Section 1040F is hereby added to Act No. 120 of October 31, 1994, as amended, known as the "Internal Revenue Code of Puerto Rico of 1994," to read as follows: "Section 1040F.- Credit for Increase in Procurements of Puerto Rican Agricultural Products.

Every eligible business that increases the purchases of Puerto Rican agricultural products in lieu of products imported for local sale, directly or through related persons, may claim a credit against the tax imposed under Subchapter A, as provided in this Section. a) Amount of Credit.- The credit provided in this Section shall not be less than five (5) percent and up to a maximum of twenty (20) percent of the

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increase in the value of the purchase of agricultural products harvested, produced and manufactured in Puerto Rico during the specific tax year in which the credit is claimed on the purchase of said products during the base period. The credit to which the business is entitled shall be fixed by means of a contract between the eligible business, the Secretary of Agriculture and the agricultural produce centers developed by the Department of Agriculture or the agricultural sectors organized by the Department of Agriculture, through the implementation of Act No. 238 of September 18, 1996, known as the Puerto Rico Agriculture and Livestock Industry Regulating Act, or with a qualified farmer. The criteria to determine the percentages to be granted shall be established through Regulations approved by mutual agreement between the Secretary of Agriculture and the Secretary of the Treasury. b) Limitation of credit.- The credit provided by this Section may be used to reduce the tax of the eligible business imposed under Subchapter A up to twenty-five (25) percent. Any credit that is not used by the eligible business may be carried over to subsequent tax years until used entirely, subject to the above limitation. c) Definitions.- For purposes of this Section, the following terms shall have the following meanings:

1. Eligible Business.- Any business that acquires a Puerto Rican agricultural product under a contract between it, the Secretary of Agriculture and a nucleus of agricultural production developed by the Department of Agriculture or as agricultural sector organized by the Department of Agriculture through the implementation of Act No. 238 of September 18, 1996, known as the Puerto Rico

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Agriculture and Livestock Industry Regulating Act or a qualified farmer, to be sold directly to the consumer. To remain an eligible business and benefit from the credit provided through this Section, the eligible business shall not reduce the level of procurements of qualified products in a proportion greater than fifteen (15) percent of the level of procurements reached during the year prior to the period for which credit is requested. The Secretary of Agriculture shall issue a certificate of eligibility to qualify an eligible business under this Section. 2. Agricultural Production Nucleus developed by the Department of Agriculture.- Groups of farmers and processing plants under the Agricultural Program of the Department of Agriculture promoted and developed through its Economic and Agricultural Development Program. 3. Agricultural Sector organized by the Department of Agriculture.Those agricultural sectors which have been organized and that comply with Act No. 238 of September 18, 1996, known as the Puerto Rico Agriculture and Livestock Industry Regulating Act. 4. Puerto Rican Agricultural Product.- Any product that can be sold to consumers, in its natural processed or state, which has been produced with products that are completely Puerto Rican or harvested in Puerto Rico by a qualified farmer. Products that qualify as "manufactured products" as said term is defined in Sections 1040C, 1040D and 1040E of this Subchapter are hereby excluded from the term "Puerto Rican Agricultural Product." 5. Qualified Farmer.- A farmer engaged in agricultural production

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and whose specific sector has not been regulated pursuant to the Puerto Rico Agriculture and Livestock Industry Regulating Act of September 18, 1996, or that an Agricultural Production Center has not been developed and is qualified by the Secretary of Agriculture pursuant to the parameters established by regulation. 6. Base Period.- Means the three (3) taxable years prior to the year in which the credit is claimed, or that part of said period that is applicable for businesses that do not have three years of operations prior to the date of the request for credit. Provided that those taxpayers who claim the credit provided in this Section and who have maintained the increased level of purchases of qualified products from the date of the granting of the contract set forth in subsection

(a) , the base period shall be set as the period of three years ending during the second year of effectiveness of this Section."

Section 2.- Effectiveness This Act shall take effect immediately after its approval.

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CERTIFICATION

I hereby certify to the Secretary of State that the following Act No. 167 (H.B. 1344) of the $2^{ ext {nd }}$ Session of the $14^{ ext {th }}$ Legislature of Puerto Rico:

AN ACT to add Section 1040F to Subchapter A of Act No. 120 of October 31, 1994, as amended, known as the "Internal Revenue Code of Puerto Rico of 1994," in order to grant a tax credit to businesses that procure agricultural products produced or harvested in Puerto Rico in substitution imported of products, has been translated from Spanish to English and that the English version is correct. In San Juan, Puerto Rico, today 1st of February of 2005.

Luis Fusté-Lacourt Director