The same government that destroyed Puerto Rico’s economy and the domestic pharmaceutical industry by repealing Section 936 in 2006 is now going to tell you what heroes they are by reviving that industry. It might be easier said than done.
From 1976 after Section 936 enactment through 2006, the pharmaceutical industry, as well as some technology segments, found a friendly home in Puerto Rico. There was an abundance of labor and a tax plan that encouraged investment. To be clear, the tax incentives offered were significant and companies took every advantage, as companies typically will. Better management of the criteria surrounding the tax breaks could well have saved 936 but that is hindsight.
It’s recently been touted that Puerto Rico could be the savior to domestic sourcing of pharmaceuticals ending our total dependence on China and India for both finished drugs and the ingredients (APIs) as well.
Also known as the Possession Tax Credit, Section 936 was a provision in our tax code ostensibly to encourage business investment in Puerto Rico and other U.S. possessions. Congress voted to phase out Section 936 in 1996, citing excessive cost and the very limited number of U.S. companies that received the tax break. In 2006, the phase-out was completed. 1
I guess when the government sought to reduce tax losses they were incurring from 936, they did not imagine the impact on the island nor the domestic supply of pharmaceuticals. Both were impacted in a rather significant way.
As these charts seem to indicate, the impact on Puerto Rico was not limited to job loss but also population loss. Almost 600,000 people left the island. Part of this migration was no doubt a direct result of hurricane Maria in 2017, but with a poor job outlook before the hurricane it did not take much of a push afterwards to continue that migration. Puerto Rico is now back to a population level comparable to 1979 with an associated smaller labor force. What this means is that even though the pharmaceutical factories are still in place on the island (some have been shuttered), it will take much more than wishful thinking to revitalize the pharmaceutical industry and repatriate some of the lost production that went to India and China.
The pharmaceutical packaging industry would welcome the revitalization of the Puerto Rican pharmaceutical industry and the repatriation of pharmaceutical manufacturing, but it will take some time and careful planning to bring this dream into reality.
1 Puerto Rico and Section 936: A Taxing Lesson from History
