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Charlotte Amalie
Friday, March 29, 2024
HomeNewsArchivesIDC BENEFITS SHOULD BE PERMANENT IF....

IDC BENEFITS SHOULD BE PERMANENT IF….

Note: This is the second in a series on best practices for our community to consider in revitalizing the Virgin Islands industrial promotion program.
According to the general provisions of the Industrial Development Program law, a firm engaged in manufacturing, assembly, utilities, agriculture, mariculture, hotel or guest house operations, or certain export services may be considered for beneficiary status.
If at least $50,000, exclusive of inventory, is invested and full-time employment for 10 Virgin Islands residents is generated, such a firm may be eligible for a 90 percent exemption from corporate income and resident shareholders' dividend income taxes; a 100 percent exemption from property and gross receipts taxes and a maximum 1 percent customs duty and 100 percent exemption on excise taxes to be paid on certain imported commodities.
The initial period for new IDC beneficiaries is 10 years, 15 years if the firm operates in the Frederiksted area on St. Croix. Once the first benefit period expires, application for an extension of full or partial benefits for up to five years may be granted, given that increased investment and employment occurs as a consequence.
Some may view renewal of benefits as inappropriate. The argument is that once the firm becomes profitable, following the "infant industry" period, benefits are no longer needed. At the very least, such a firm should "share" some of its profits through the corporate income tax with government and still be remain healthy.
This approach has traditionally been applied to goods-producing firms selling domestically or near their customers. As transportation technology developed, these firms became able to operate further from their customers.
The incentive to locate further away derives from an opportunity to lower cost through reduced taxes/fees offered by a jurisdiction willing to give them up in return for the employment created. This means increased profit to the firm, which makes such a move attractive.
Export service companies or "Designated Service Businesses" are a second type of exporting firm.
As noted in the IDC law, these firms provide one or more out of a list of 19 services to customers located outside the Virgin Islands. Examples include: economic, scientific or management consulting services; mail order firms; and dental laboratories.
In neither case does renewing IDC benefits have anything to do with the "infant industry" argument. That is, to keep these firms of this type, benefits must offered in perpetuity.
For the goods-producing exporter, a reduction in benefits below what may be received elsewhere could result in no reinvestment and closure following the point when the firm's capital equipment is fully depreciated.
For the service exporter, a move to the location offering more benefits could be instantaneous. That is, the service exporter is really a "backpacker." Most likely, personal computers are the only capital equipment. Such a firm could shut down on a Friday afternoon, move to another country over the weekend and be in operation there on Monday morning.
Service and commodity exporters are one group for which the IDC renewal decision should be easy. Because location is nearly unrelated to profit, that jurisdiction offering the lowest cost operating environment will win the investment and the benefits of the employment.
Editor's note: Richard W. Moore is president of Economic Research Service, a consulting firm offering service to Caribbean/Latin American companies, attorneys and governments on economic development projects and programs.

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