Puerto Rico has dealt an unexpected blow to the US medical device industry with a proposed increase of a tax that was originally planned to decrease. Puerto Rico's announcement comes at a time when device makers are weary from battling implementation of the US excise tax for which they just made their first $97 million payment to the IRS.
Calling the proposed increase significant, Stephen J. Ubl, president and CEO of the AdvaMed, issued a statement in response to the tax:
“AdvaMed strongly opposes plans announced today to significantly increase a tax on medical device manufacturers who operate in Puerto Rico. The tax when first imposed in 2010 was slated to decrease from 4% in 2011 to 1% in 2016. The Puerto Rico Treasury announced today that it will seek instead to raise the tax back to 4% and keep it at that level through 2017."
In his statement, Ubl claimed that raising taxes on a key manufacturing partner will not improve Puerto Rico’s economic recovery. He took the opportunity to note that device manufacturers are already struggling to address a challenging international business climate, significant cuts to Medicare programs and, of course, the US medical device tax which went to in effect in January.
"This additional burden will force companies to make tough choices about cuts in R&D, employment, and possible significant delays in capital improvements," he said. And so, AdvaMed is urging Puerto Rico's governor to reconsider the tax. Ubl has called it a "damaging tax increase."
Puerto Rico was once the place to build a manufacturing facility, with favorable tax rates and other incentives. Although it has seen increased competition from Asia and more recently by South America as the place to offshore, many US device companies have established operations there, and it such a tax just might drive them to look elsewhere.