Rum tax comes into focus as Puerto Rico, USVI battle for production
A subsidy granted to producer territories of American rum benefits Puerto Rico to the tune of about $400 million each year, but much of that aid is in jeopardy.
Two of the world’s largest rum producers, Bacardi and Diageo, make rum for the U.S. market on Puerto Rico. The U.S. Virgin Islands government, in a bid to attract more production, offered Diageo half the rum-tax revenue that the government would receive and a 90 percent income tax break.
At present, the Virgin Islands receive about $80 million each year in aid from the rum tax.
Puerto Rican groups are militating against Diageo’s move, which would, in the words of Florida U.S. Senate candidate Maurice A. Ferre, "help 100,000 U.S. citizens in the U.S. Virgin Islands by hurting 4 million U.S. citizens in Puerto Rico."
The reason that Puerto Rico can’t grant Diageo generous revenue provisions is that the territory has a cap on rum-tax rebates to producers, including Bacardi. In Puerto Rico, only 10 percent of rum-tax revenues can be granted to rum producers, but no such limit exists in the Virgin Islands.
Issues at stake are Diageo’s rights and responsibilities and the government’s role in the imbroglio.
As Ferre noted, the Virgin Islands have a much smaller population than Puerto Rico, and some may agree with his contention that it’s unfair to benefit USVI residents at the expense of Puerto Ricans.
What is clear is that Diageo, as a corporation dedicated to the pursuit of profit, should be free to act in its own self-interest. If Puerto Rico wants to keep receiving government aid, it should change its rules to become more business-friendly.
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